Nifty fall not a worry, may rise 30-40% in 24 mths: StanC

Below is verbatim transcript of the interview:

Q: What is your take on the amount of correction we can see? Are we going to see a fairly deep correction, are you getting some negative cues from the global markets?

A: There is certainly some level of increased volatility in the global markets both from the West and China last few days, which is causing a bit of choppiness here as well. But we have gotten so used to low volatility in India that a 300 point cut from the high sounds large, which is just 3.5-4 percent.

I don’t think it is unusual, I don’t think it is large yet, I don’t think something like this has not happened many times in this rally. In fact, this rally has got unusual characteristic of not having a double digit correction right from last August to last September.

Between 13 and 14 months, we haven’t seen a double digit correction which has never happened in the history of markets not even in 2003-2007 Bull Run.Q: It is precisely this confidence from a lot of experts that makes you a bit nervous, just when the market is starting to get complacent, do you think we could be headed for a major fall towards the end of the year?

A: I doubt if we will get a major fall. It is difficult to say whether I can go slightly more deeper, difficult to roll out. But if you define major as more than 10 percent, I don’t think you will get it. If you define 5-6 percent as major, 3-3.5 percent has already happened, another two percent can happen, tough to say.

Q: Currently, what kind of returns are you expecting from this market in six months, in 12 months, in 24 months?

A: It is easier to see in 24 months, six months is a lot tougher. In 24 months I will go to the extent of saying market could be 30-40 percent higher as compared to the current level.

Next six months can be fairly challenging, it could be chopping up and down, there will be tonnes and tonnes of events packed up in the next six months.

We will have the Union Budget, we will have the speculation around whether Reserve Bank of India (RBI) cuts rate or not or delay it once more, what will US do to the interest rates, many people think they will advance the calendar for the hike to end of Q1, beginning Q2 and so, the first half of next year can be a little choppy. In longer-term it is easier to say and I have bullish longer-term view.

Q: To brace yourself and to prepare yourself for this 30-40 percent run in the next 12-24 months, what kind of stocks or sectors would you lap up on now?

A: You have to be taking a positive call on the economy. So from the next 24 months point of view, given everything the government is doing, either sorting out the coal supply issue or going in for faster execution, faster implementation, faster approvals, all of those things will unlock some of the latent suppressed GDP growth at this point.

I think that should be enough to take GDP growth to 6-7 percent range, which means a lot of pressure which has been there on sectors and stocks because of declining economic growth tends to reverse slightly. So it will be largely economy sensitives and cyclicals from 24 months point of view.

Q: There are metal majors who tell us that nothing has moved on the mining space and even where the Supreme Court has allowed iron ore mining, they have not received any positive response from the state governments in particular. Also, power companies are not sounding any more optimistic, they are deeply worried about the finances of the distribution companies (DISCOMs) after the first round of price hikes, tariff hikes have not been announced by the DISCOMs. Their ability to buy power even assuming coal was available and power is being generated is extremely questionable. The despondency among the smokestack companies, infrastructure, metals, industrials is not funny, are you confident of growth?

A: It is always darkest before dawn. The on the ground feedback is that the economy has not recovered at all, things have not started moving infact, if at all, many people think that things are little tougher today than they were six months ago. But a lot of things are happening - on the mining front for example, the new changes proposed by the government on the mining act that could free up a lot of the bottlenecks that you just mentioned.

Similarly, a lot of movement which is happening, the government is trying to do behind the scenes on coal should ease out the issue on power.

All these statements which the power minister and the new railway minister has come up with on how they want to promote investment in the sector and free up and get more private participation, all this will happen but none of these happens overnight, these things take time which is another possible factor to say that next six months could be a bit tough and challenging but in the longer-term, work is happening but there is always a pipeline effect. If you take the example of the previous Bharatiya Janata Party (BJP) government, 1999 to 2004, the good work started in 1999, the real benefit of the impact on the economy started getting visible only in 2002 to 2003 and so, it takes time.

Q: We have seen a fall of 45 percent in Brent crude since the start of the year, would you increase your exposure to either paint companies or oil marketing companies (OMCs) or tyre companies in order to play this move?

A: I think the stocks have already done very well. Purely from the short-term point of view, the risk is that the crude bounces from here and tanks further. Purely a short-term tactical view here, I would be wary and will look out for a bounce in crude at this point of time rather than a further crash.

Q: This seminal fall in crude and other commodities has diminished the buying power of a whole range of countries, smaller ones like Venezuela and Nigeria and bigger ones like Brazil, Russia and other commodity countries, are you working down the earnings of several companies so much so that your overall earnings growth also falls at all in the next couple of quarters?

A: I don’t think India is exposed so much to buying power from oil producing nations that our earnings growth will get impacted significantly. What could be a bigger issue for the market going forward is that some of these countries specially Middle East have been suppliers of capital to the country.

If the situation persists for a very long period of time, attracting capital from these destinations might be a bit of a challenge but I don’t think from earnings growth point it matters much.