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Last Updated : Jul 25, 2017 04:49 PM IST | Source: Moneycontrol.com

Nifty hits magical number of 10,000: 'Picture abhi baki hai' say D-Street veterans

Political stability, along with stable macros and a strong currency are some of the factors which have made India as one of the sought out destination for global investors.

The Nifty50 hit the magical number of 10,000 in opening trade on Tuesday but at such great heights, D-Street veterans ask investors to investors to invest more responsibly.

The Nifty50 has already rallied 22 percent so far in the year 2017 after closing the year 2016 on a flattish note. Many fundamentals factors have a role to play in this historic landmark event.

Political stability, along with stable macros and a strong currency are some of the factors which have made India as one of the sought out destination for global investors.

Overseas investors have poured in more than USD 5 billion in the Indian market so far in the month of July taking the total inflow to over USD 25 billion since January.

“This is the time to celebrate. Over the last 10-15 years, we have come and various occasions when there was doubt on India story. We have continuously kept our faith. Congratulations to all investors who participated in this,” Madhu Kela, a veteran market expert told CNBC-TV18 in an interview.

“There are doubts about valuations, growth picking up and corporate earnings. If you look at 12-month perspective, the market has returned phenomenally. Just a word of caution: let us not extrapolate what has happened in past 2-3 years. Next 2-3 years may not be good. There could be challenges in 6-12 months. Picture abhi baaki hain,” he said.

We have collated a list of reactions from various D-Street experts as Nifty hits five digit mark of 10,000:

Vallabh Bhanshali, chairman of Enam group

The market will continue to generate wealth for investors going forward. The way market has rallied from 9000 peak, clearly points towards a long term bull market in India. But, going forward, all investment should be done with caution.

One of the very important factors in hitting this milestone is liquidity which is likely to continue to pour into market. There are lot of structural changes which has happened. First, people are now confident about long term investing. Investors are not looking at 1-2 years jump and this trend is likely to continue.

Second, the government is looking at all the segments of the economy which gives more political stability. And, we know that without political stability equity markets can go for a toss very easily.

Third, the economy is changing character. The credit expansion at the retail side is growing in a healthy manner. All private sector banks are growing in the retail segment and I think this the character of demand very easily.

Hemang Jani, Head - Advisory, Sharekhan by BNP Paribas

We are in a long term bull market in India and 10K nifty is just an important milestone in this journey. We hope more investors are able to participate in this opportunity as Equity has been best-performing asset class both in India and Globally.

Nithin Kamath, Founder & CEO, Zerodha

This will get marked as a historic moment in the history of Indian capital markets. Nifty at 10k is a testimony to the inherent strength and potential of India Inc.

The present Government's pro-business stance will propel our markets further. I'm optimistic about the future, and I'm convinced investors in stocks and mutual funds will earn significant returns over the next 5 to 10 years.

Hemant Kanawala, Head - Equity at Kotak Mahindra Old Mutual Life Insurance

It is difficult to predict movements of the market in the short term. However, in the longer term, the trajectory of the market will be determined by earnings growth.

With stable macro conditions and underutilized capacities, the economy has necessary ingredients to grow at a faster pace going ahead. Hence, the markets have the potential to trade at higher levels in the coming years.

Jimeet Modi, SAMCO Securities

A lot of people out there on the street will have frustrations at Mount 10K on Nifty50, that they did not invest or have not participated in the rally. It is possible therefore to have a kind of blow off rally wherein the latecomers would also be gobbled up before the market starts to correct the entire nonstop rally since December 2016.

Indices do not grow to the sky and therefore somewhere in the middle of extreme optimism, the tide will turn and the market will start to correct, may be even more sharply beyond anyone’s expectation.

Nitasha Shankar, Sr. VP and Head of Research, Yes Securities

"The markets have crossed a sentimental barrier of 10,000 which is a phenomenal feat in itself. The spectacular run-up in stock prices over the past few years goes on to re-affirm the India shining story which in turn is driven by macro-economic condition and fundamentals of the country. Our recommendations to long term investors is to remain invested in these markets as the India shining story still has lot of steam in it. However, global geo-political situation could cause aberrations as a results of which it is always prudent to keep booking some profits whenever new peaks are attained."

Rakesh Tarway - Head Research, Reliance Securities

The Nifty50 finally touched round and psychologically important mark of 10,000 on the back of strong domestic liquidity, rally in global equity markets and reasonable earnings performance from domestic companies.

Valuations are now discounting good earnings growth for the next year and any disappointment on the same might lead to sell off in equity markets. Retail investors should be preferring regular periodic investments in equity markets rather than bulk one time investments to spread out the risk.

Below is the verbatim transcript of CNBC-TV18 interview.

Anuj: 10,000 is here, we could argue about 10-20 points here or there, but is this still a market in which you go out and buy and build portfolio, even at 10,000?

Gupta: If you have a long term investment horizon, then yes, but obviously your return expectations need to be adjusted. As you rightly said, 10,000 is pretty much here, I would have point to actually a couple of near term favourable tailwinds, you have the Fed policy coming through tomorrow night in the US, Deutsche’s house view is the Fed will not hike this time, it will not hike even in September, although in September there will be some announcement of tapering.

So, when you have a global policy environment which is still mildly positive, although gradual tightening, US bond yields have corrected from their highs, in India we have got the likely rate cut from the Reserve Bank of India (RBI) later this month and because of that, plus the flow is still very positive in terms of the local funds in particular, they have been the big buyers in this particular rally. So, near term still looks alright, but I think the return expectations need to be moderated from these levels. However, if you have a reasonably long three to five year investment horizon, equities should still do better than fixed income.

Nimesh: From a near term point of view, do you foresee any risk to this market? We briefly spoke about China could be a bit of a risk factor, anything that strikes you that probably we should be watching forward?

Gupta: One is obviously geopolitical risks which one can never predict. We have our national security adviser visiting China this week. Let us see how that pans out. I don’t think there is cause for any serious worry, but you never know, tensions could get worse and the market could take that as cues for a correction. However, I think the bigger issue is the overhang of equities supply.

You have a lot of paper likely to hit the market in the next two months, a lot of these insurance companies, government issuance, lot of private sector QIPs and IPOs coming through and that could limit the upside to the market in the near term. Keep in mind the earnings growth is also not really picked up to that extent; while it is running largely in-line with expectations, but overall the index level earnings growth is still nothing very impressive so far.

Anuj: Among your largecap picks, you have Aurobindo Pharma. I don’t know if you want to talk stock specific, but is this a bottom up call that you have taken on a pharmaceutical name or is it a sectoral call that you have taken?

Gupta: On the pharmaceutical sector, we are quite underweight. We have been for a while. This is more of a stock specific call and mainly driven by the better drug approvals pipeline, in their case valuations and so on. However, in general the pharmaceutical sector we would still be quite concerned given the US FDA risk as well as the currency appreciation risk which I think is still not fully appreciated especially keeping in mind if the strong US dollar cycle is no longer there, then you could see emerging market currencies including the Indian currency continuing to appreciate further.

Nimesh: You talk to a lot of your global clients as well. What is the general sense towards India? Are they still overweight, are they looking to trim down their overweight positions and also as a house view, you have been quite bullish on the fact that the government has been doing a lot of prime pumping in terms of investments in the public side. What is your general sense that you pick up from your global clients?

Gupta: Interestingly if you look at the global markets, the top performing markets among the larger emerging markets (EMs) have been Mexico, Korea which is not really EM, more of developed market situation, and India. India’s rally this year, the Nifty is up 22 percent year-to-date (YTD), but keep in mind so has the MSCI emerging market index. So, India’s rally is not unique in itself.

Having said that, most foreign investors are still happy to maintain their modest overweight position, some of them have very big overweight’s, no one is really talking of booking profits as yet in a very big way. At the same time, they are not putting in huge amounts of fresh money either. So, if you look at the foreign institutional investor (FII) inflow, this year it is okay. It is nothing, it has not hit record levels despite the index going to new highs. It is being driven more by the local flows.

However, when all of these issuances that are coming through whenever you have a good IPO or block which is priced at an attractive discount, then you do tend to see fairly strong FII interest. Going back to your question on the government spending, that has been our key theme, we think that continues if anything that accelerates in the next two years. So, that is going to be one of the big drivers for the economy in the absence of private sector capex.

Latha: Big moment. 10,000 hit for a nano second but big day for the day. What are your thoughts?

Parekh: It is a confidence on India. It's a huge confidence on the political leadership, it's a confidence of Indian economy, the growth prospects and also the future; the stock markets always are ahead and they look at the growth possibilities and even today the World Bank, International Monetary Fund (IMF) have come out with a projection for the next two years - 7.5-7.7 percent gross domestic product (GDP) growth rate. Political leadership is strong, they are taking the right decisions, hard reforms, hard decisions are taking big reforms which have pain in the early days but it's good for the system in the longer run. We have got goods and services tax (GST), we have got Real Estate Regulatory Authority (RERA), insolvency; we have so many reforms that the government has pronounced. So I think it is a confidence on India by the global investment community.

Latha: We still can talk a bit about growth; we can still talk a little about cement output not increasing or bank credit not increasing. Would you say that by the end of the year we will have less to grumble about?

Parekh: I am sure we will have less to grumble. I see green shoots in the economy. I see entrepreneurs talking about new investment in capital. I see HDFC Bank growth in retail and small and medium enterprises (SME) segment has been strong last quarter. So it's the large corporate are not borrowing and that is why the advances seems to be slow but do not forget, when you look at advances of bank, you should also look at how much money corporate have borrowed from the international market and the bond market domestically. The domestic bond market is very large now. It has more depth than it had one year ago. Most of the companies prefer to go to the bond market and masala bond has raised about Rs 50,000 crore, external commercial borrowing (ECB) have been high, domestic bond issues have been high, equity issues have been large, so the bank credit automatically gets impacted. I do not think that is the only indicator you should look at.

Anuj: You have seen this market grow from a base of 100 on the Nifty to 10,000 and so much wealth being created. For investors entering now, do you think wealth could continue to be generated in this manner going forward?

Bhanshali: Absolutely. I have zero doubt and the way market has ascended 10,000 peaks, clearly points to a long-term bull market being in India in a very healthy manner. So investors are welcome but all investment should be done with caution.

Latha: I take your caution on board. There will always be arguments that valuations are very high. What is your sense that you think liquidity now is good enough to overcome these valuation fears?

Bhanshali: I think one of the very important factors in this milestone is liquidity. There has been huge amount of liquidity and that looks like continuing to come into the market for various reforms and structural changes that have taken place in the economy. So I wouldn't know whether liquidity teams multiples. I think liquidity will keep pushing the multiples up but people are going to shift to two-three year out views and whenever we look at two-three year out views, there are always impending dangers.

However, three structural changes have happened in our market. One is that people are more confident about long-term investing from insurance products to pension products to mutual funds. So people are not looking at one or two year jumps and that is very healthy and that trend will continue and that is a very good story for us. The second is that the government is an all-round government. It is not only looking to grow business but they are looking at all the segments of the economy which gives it greater political stability and I am making that point not from business point of view directly but it is very essential that without political stability market go for a toss easily. We are not going to shoot ourselves in the foot. The third thing is the credit business. The economy has changed its character; it is no more flowing from top to down, it is no more from public sector to private sector or even from big corporate to smaller firms or individuals. So the credit expansion on the retail side is continuing in a very healthy manner, if you look at results of Bajaj Finance or HDFC's growth in the informal sector or the smaller borrower sector, all private sector banks are growing in the retail segment. This changes the character of demand dramatically and it is a welcome move. Mr Parekh made also this additional point about the bond market and the ECB market and so on.

So we must look at that history never repeats but it rhymes or history repeats but it doesn't repeat exactly, it will rhyme and therefore some of the parameters that we are looking at - and the last factor that I might add is that the interest rates, we have broken the back of inflation by very wise and prudent MSP policies, we are enriching the farmer in different ways and not only through higher prices. This is very significant and pragmatic move, which the government has taken and this results in lower inflation and therefore structurally lower interest rates and when you have lower interest rates you have room for higher PE multiples. So in that sense also the market has undergone a big change. So I think it is a very good market but when the markets are at historical highs, you need to be sure that what you are buying. If you buy junk at these prices, you will get into trouble. If you buy quality companies, even if they go down by 20-30 percent due to whatever reason, those stocks will come back.

Anuj: Historic day, the Nifty at 10,000, your thoughts? I remember having a chat with you one and a half years back the Nifty was at 7,000, you said, you will be surprised by the kind of rally that we will have. From here, what next?

Kela: This is the time to celebrate because over the last 10-15 years - since the time I have been in the markets - on various occasions when there was so much doubt on India story, where India is going and a lot of time it was due to global reasons, political reasons, we had continuity and kept our faith. I hope investors had listened to CNBC-TV18, that has done such a great job in wealth creation as well, so this is the time to celebrate I would say. Congratulations to all of you and all the investors who have participated in this big wealth creation move.

So I would say, we are at 10,000, there are lot of doubts about valuation, about growth picking up, about corporate earnings etc. So when you look at six-twelve months perspective, obviously markets have returned phenomenal - let us not only go by the indices, the kind of money which has been made in smallcap, midcap, even in select largecap companies, it has been abnormally high over the last two-three years.

We must recognise that. the only word of caution - I do not want to spoil the party today - which I would like to tell investors, is that let us not extrapolate what has happened in the last two-three years and let us not invest on expectation that next two-three years are going to be equally good. They may not be. Maybe there will be a period of some challenge over the next six-twelve months. We do not know what events will take place but market is prune to any global event taking place and there might be some correction.

As far as India story is concerned, I would repeat my favourite phase that "picture abhi baki hai dost".

Nimesh: When everybody was negative in the market in the last two-three years, you have been bullish and now you are putting a bit of a caution word, what to your mind could be the key risk?

Kela: I am not putting a caution word. I am only saying that from a long-term investor, who is coming in the market from the market three-five year perspective which is what they have been advising, equities still will do well and they will make decent returns. All I am saying is that since market had a phenomenal rally in select midcap, largecap and smallcap companies, you need to exercise caution when you are buying junk, when you are buying stories here. If you are coming in from a perspective of making money in the next three-six months, that is the only caution I am putting. But as I said the equity story of India is going to continue and I still am very convinced that equities over three-five years period will still be one of the best asset classes to invest money on.

Anuj: We have slipped a bit from 10,000, 9,979 now. From here on what would be your top call in terms of leadership from here, continue with private banks?

Gupta: Private banks is a sector we still continue to like. As we have seen with some of the results so far, some of the leading private banks, when the whole system loan growth is barely 5-6 percent, these banks still growing at 20 percent. With digitisation coming through and a lot of these banks leading the way over there, you could see their market share gains accelerate even further while the PSU banks on the other hand they are still struggling with their legacy NPL problems or the capital issues. I think they will continue to gain. So private banks still remain our top picks.

Nimesh: What about IT because that is where a lot of people are now suggesting one needs to be little contra and look at IT names. Are you bullish on IT as a pack?

Gupta: We were negative at the start of the year, but now we have become more neutral to marginally positive mainly because of the sharp underperformance of the sector. However, I would not say we are out and out bullish as yet. Yes, the downside is protected given a lot of capital restructuring or the share buyback, or the dividends which would come through, but the revenue growth is still elusive. However, valuations are no longer as expensive. So, we would not be underweight anymore.

Anuj: How to play this market, you have been saying that let us look at some of the under owned, unloved sectors. Two years back your big call was Mumbai based real estate; that has worked out beautifully. What next, how to play this market at 10,000?

Kela: I think you have to be very selective in this market. I think I would say on the whole, to me a lot of largecap companies are looking cheaper than the midcap and smallcap companies. So rather than going in a particular sector, I would say that this is again a market where you have to do really bottom-up research.

Some of the largecap companies on a bottom-up research are coming out real clear winners as far as I am concerned. So, you can take a sector call. However, we have observed in the last two to three years in the same sector, whether it is automobile or even real estate, not all real estate companies have done well. If you see the performance of real estate sector, there is one company which has grown four times and there is another which is struggling to even do 25 percent return. So, I would say bottom-up, but more value in largecaps than midcap and smallcap at this point of time.

For entire discussion, watch accompanying videos...

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First Published on Jul 25, 2017 09:53 am
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