Nifty may fall sub 8K; FY16 earnings to improve: Citrus

“I think we will have a very dismal scenario for the market in case all these three factors turnout to be negative and they happen together. The best case scenario would be that maybe one out of these three factors could be negative, the others would not be,” he said.

However, FY16 is expected to end on a good note with the possibility of 15 percent spike in corporate earnings over last year and an incremental spending by the government. When the market picks up, primary beneficiaries will be financial institutions, especially the banks, he said.

Below is the edited transcript of Sanjay Sinha’s interview with Latha Venkatesh and Ekta Batra on CNBC-TV18.

Latha: There has been this relentless selling over the last two days. First what are your trader friends telling you; is this just a temporary lull in selling or will we see a bottom in place and perhaps once again that 8,100-8,400 trading band resuming?

A: I feel and that is what the market also expects that the previous bottom of the market that we visited recently, which was about 8,000 points on the Nifty, may not necessarily be the final support that the market will hold on to. It might sink below that.

If you see three points which the Reserve Bank of India (RBI) pointed out as concerns going forward for the economy - the monsoon, crude prices and the international events are also the factors which confront the capital markets also.

At this point of time, it is important for us to take a call as to how these three factors will play out and whether they will converge together. I think we will have a very dismal scenario for the market in case all these three factors turnout to be negative and they happen together. What could be the best case scenario would be that maybe one out of these three factors could be negative, the others would not be.

We have not even seen the onset of the monsoon, so how can we actually come to a conclusion that it is going to be deficient in the first place. Monsoon has to be measured on three parameters –quantity, spatial spread and its impact on the crops. Markets will not get to know these factors at one go; it would be spread over three to four months when we will actually get to see the impact of these factors.

As far as crude prices are concerned, with USD 64 per barrel as the fulcrum, I do not expect a scenario of a 30-40 percent appreciation in crude prices from the current levels. At best, maybe, 10 percent and if you have seen the Budget papers, they have also factored the subsidy assuming the crude prices to be at USD 70 per barrel. So, till that point of time we are in comfortable zone.

As far as the international scenario is concerned, it is made up of two primary concerns. One is the Greece event and the other one is the Fed rate hike. These two events have come to the center stage on number of occasions and when they have receded in terms of their importance. We will have to deal with them as and when they come but the Fed rate hike is probably a reality. Only thing is that it might happen between September and December.

So, I believe that in the next three to four months we will see the market under downward pressure. I think this is an opportunity which the Indian markets present to investors for accumulation rather than for staying away.

Ekta: How would you approach the banking space? We have been discussing how a lot of high leverage group of companies or particular stocks have been seeing deceleration in the past couple of trading sessions. Would you be worried about taking exposure to even private banks, which might be lenders to a couple of these accounts and then there is vulnerability that we could face in 2016 and percolate onto the gross NPLs?

A: My call on the markets direction is more macro economic lead and therefore, I expect the economic situation to give a fillip to the market. If that is going to happen then the primary beneficiaries are going to be those, which are in the financial sector and banks particularly.

If that is to happen, these misgivings that we have on both private banks now as well as the public sector banks for the last few months primarily linked to the proportion of non-performing assets that they are going to be accumulating in their books.

The outlook on that might be little more positive than it has been. Therefore, the view has to be positive on the banking sector and this weakness is an opportunity to accumulate. I will not say that you should go biting into banks as a pack but you should surely nibble and accumulate in this weakness, which could be lasting for three to four months.

Latha: Which ones? Would you go with the public sector banks as well? In the private sector banks would you grade any?

A: That would depend as how strong hearted are you. If you want to take an extreme contrarian call, I would say pickup the public sector banks because the delta there will be higher. If you want to play relatively safe, then the private sector banks are where you should be picking your stocks from.

Latha: What kind of a bottom you think the markets can take to? Do you see 7,800 kinds of levels? You sound optimistic, but what kind of levels should we reasonably expect?

A: I think it is quite possible that the Nifty might slip to about 7,500 levels because why did the market react the way it did to the RBI policy? I think it is probably arising from the fact that the market has very few reasons to go up and therefore, the upside of the market has got capped primarily because of the valuations of the market.

I think the same reason will also arrest the downside of the market. FY15 has been a very dismal year in terms of corporate performance. I am more optimistic on FY16. Given the fact that we are now recognizing is that the government unfortunately could not spend much in FY15. In the last quarter of FY15, they were very stringent in terms of their spending.

However, FY16 is very different. They are on the front foot as far as spending is concerned. So, with that as the beginning I would expect that we can expect the earnings outlook for FY16 to be comfortably 15 percent above the levels of FY15.

If that be the case, I think the downside of the market gets arrested purely because the markets become very attractive at about 7,500 points on Nifty. At that point of time, for no other reason, the sheer attractiveness of the valuation will bring in a lot of buying and that is what is going to arrest the downside of the market.