Nifty can touch 9000 in March '17; like FMCG, infra: IL&FS

Vibhav Kapoor of IL&FS believes that Nifty could inch towards 9,000 mark by March 2017 if global factors stabilises and monsoon turns out to be good, unlike the last two seasons. With the fears of global recession coming down, markets have started to settle down, he says.The worst in earnings cycle is over and one might not see further downgrades in earnings from FY17, he says. Kapoor says worst in commodities as well as emerging markets (EMs) is over and from hereon, one will see fund inflows. “We will see gradual, but definite improvement in commodities in coming years,” he says adding that this will be a certain positive for the Indian economy. Once the economy picks-up, rural-related sector like two-wheeler and fast-moving consumer goods (FMCG) are expected to do well. Other than this, Kapoor is also bullish on sectors such as infrastructure, automobile, real estate and metals. “Bull market for pharmaceutical sector is over,” he says adding that weightage needs to be reduced on the sector. Other than pharma, Kapoor is bearish on telecom and IT. Below is the transcript of Vibhav Kapoor’s interview with Latha Venkatesh and Reema Tendulkar on CNBC-TV18.Latha: What is your reading of the market? 10 percent higher from Budget day lows from 52-week lows actually. Does it look well priced in now or are you still a buyer?A: Overall, we are reaching close to the end of this bear market which has been there for more than a year now and which most analysts have dubbed as a correction, but has actually turned out to be a bear market. I think we are reaching very close to the end of that and on the verge of starting a new bull market over the next two to three months. This does not mean that we are going to go right up from where we are. We probably have one more dip left on the down side or a range bound trade maybe for the next 2-3 months, and after which, things should be far better than what they look today.Reema: So, say by the end of the year, where do you see the Nifty?A: I would think by March, 2017 Nifty should be in the range of somewhere between 8,700-9,000. A lot of force is going to depend on how things go globally, etc. And one very important factor is going to be the monsoons this year. We have had two very bad monsoons and they have really had a negative impact on the economy. A lot of analysts thought that monsoons do not have that much of an impact on the economy, but they have had a pretty adverse impact. So, hopefully, the monsoons are good. I think you could be closer to 9,000 by March, 2017.Latha: That is good to hear, especially from a careful observer like you, but what are you pinning your hopes on other than the rains that you spoke about? Are you noticing any traction in the economy? We do not get to see it when you look at probably very bad indicators like index of Industrial Production (IIP) or even for that matter when you looked at other leading indicators like core sector. We are not really getting that sense of growth. Where are you noticing the green shoots?A: A lot of things are going to contribute to this. One, globally, things are beginning to settle down and the fear that we people have had of a global recession, particularly in the US, I do not think they are coming true. At the same time, the US is not going to go up, to expand in a very aggressive way, so interest rates will remain moderate. And because of that, and also the fact that the emerging markets have already suffered a lot, the worst for emerging markets, the class is getting over now and you will see some fund flow happening in the emerging markets.Secondly, as far as the global commodity cycle is concerned, we have reached the bottom of that cycle and from here onwards, we are going to see a gradual but definite improvement in the commodities cycle over the next few years. And that will definitely help earnings as far as India is concerned, because one of the reasons for low earnings has also been a very low commodity prices, although of course, in the macro sense, it is always good for India to have low commodity prices.Third, the downgrades in the earnings cycle are coming to an end. We have seen analysts being extremely positive over the last 2-3 years and they have had to repeatedly bring down their estimates every quarter. The last of that will definitely get over at the most, by the next quarter results, that is the current quarter results, when they come out in April and May. And after that, I do not think you are going to see further downgrades. And with an improvement in the commodity cycle, some improvement in the rural economy because the government is now really focusing on the rural economy, hopefully better rains, you could be seeing 15-18 percent growth in earnings in FY17. And if that happens, that will be after three years of almost stagnant growth.So, there are a lot of reasons. And fourth of course, valuations have now become much more in line with what the fundamentals are. So, given all this, I think you should be looking at a reasonable improvement in the market going forward.Reema: How do you contend with pharmaceutical stocks? It is an over owned sector. Many people have invested in it for the long-term and now, one after the other, all the big companies are getting hit by the US Food and Drug Administration (FDA). Is it just best continue holding on to it or do you believe that it is time now to exit big pharmaceutical names because the USFDA worries have only gotten exacerbated?A: As I have been saying for the last 2-3 months now, and on this channel also, that I think the bull market for pharmaceuticals is over. They are going to underperform the rest of the market. And, therefore, weightage in the pharmaceutical sector should be reduced and particularly given the fact that we are now more positive on domestic economy and the cyclicals, etc. if you are overweight on pharmaceuticals, you need to reduce that significantly.Latha: Glad to hear that you will be more positive on cyclicals. Now, which cyclicals?A: Obviously, if the economy starts to do well, a lot of cyclicals will do well. The first is rural related stocks because the government, by its Budget indications as well as otherwise, is going to focus more on the rural economy and as I said, if the rains are good, you could see a very sharp improvement in the rural sector. So, two-wheelers, fast moving consumer goods (FMCG), etc. could definitely do well. Then you have the financials where the worst of the problems, probably are getting over. Maybe you need to wait one more quarter, as I said, fourth quarter results might still see some fall in finance stocks further, but that would be the right time to pick them up. In fact, I never look at real estate, but after this bill has been passed by parliament, first time I am going to look seriously at real estate and some of the good companies there, because now it is going to become a regulated sector. It is going to be less opaque, there is going to be more transparency, so you might even get some good bets in the real estate sector. And if the economy starts to do well, of course, the automobiles should do well. So, there are a lot of sectors. The only sector which I would still not go for domestically would be the telecom sector where there are still a lot of headwinds going forward and maybe underweight on IT and pharmaceuticals.Latha: You just left out metals and capital goods. How would you be positioned there?A: Metals, definitely very good and I mentioned this about 2-3 months ago that every fall, one would want to buy metals now. And as I think that the worst in the commodities sector is over, all commodities in fact, and while you may not get a huge rise immediately, but definitely the worst is over, the cycle is going to turn up gradually. And therefore, a lot of metals are definitely going to do well. As far as the infra sector is concerned and the capital goods sector, obviously they are late starters, but the government is taking a lot of steps which definitely should have a positive impact, so maybe they are late cycle sectors and will start doing well a little bit later on, but they should also do better as the economy picks up.