The market rally will be led by cyclicals, especially sectors like banking, auto and construction, says Sanjay Sinha of Citrus Advisors.
Speaking to CNBC-TV18, Sanjay Sinha of Citrus Advisors said the Brexit will have an impact. "The market hasn't priced in the risk of the Brexit referendum. The impact could be big in the short-term and bigger in the medium-term," he said.
In case the markets get the best possible news with Brits choosing to remain in the EU, he expects Nifty to hover around 8500 levels. He adds this may not happen immediately. In the long-term, he estimates Nifty to be around 9000 points. "The rally will be led by cyclicals, especially sectors like banking, auto and construction."
He says the bond market is not immune to global risks and as far as currency market is concerned uncertainty over the next RBI Chief and foreign currency non-resident deposits maturing soon will have have an impact.
Below is the verbatim transcript of Sanjay Sinha's interview with Anuj Singhal and Ekta Batra on CNBC-TV18.
Ekta: How are you approaching the markets ahead of the big Brexit vote tomorrow? Do you think that it is going to be a game changer, a binary event?
A: There is no doubt the event is binary and in my opinion, the market has not fully priced in the risk of the Brexit referendum. In the event that the referendum supports the cause for Britain to exit the European Union (EU), the impact in the short-term could be big but the impact in the medium-term could be even bigger. In this context, I am reminded that just a year back, we had another member of the European Union Greece which also conducted a referendum and the referendum did not support the condition that was being imposed by EU on one country.
In the case of UK also, the issue is very emotional. We therefore cannot take this referendum outcome to be granted based on what we rationally think should be the right way, it is an emotional issue and therefore the citizens of UK could vote either ways.
However, in the event that this referendum supports UK to remain within the European Union, it is also therefore going to set the ground for a relief rally and this relief rally can take this Nifty beyond the congestion zone that it has been stuck in over the last one month. Therefore, we can see elevated levels in the local markets also.
Anuj: In case the market gets a best possible news which is that there is no Brexit, in this run where do you see the Sensex and Nifty heading and what would be the stocks that you would want to buy in case of this eventuality?
A: Assuming that the Brexit is a favourable verdict, I would say that in a very short time, the Nifty could sail to a level between 8,450 and 8,500 levels. I would have hazarded that it could probably rally even beyond that to the levels of 9,000 but I would say that this may not happen immediately.
My longer-term call is that I expect that the Nifty should be crossing 9,000 points within the calendar year itself. If that is to happen, the rally is now going to be led by the cyclicals and within the cyclicals the sectoral choices would be more in the favour of banking, auto and construction.
Ekta: While we are talking about equity markets, in context of what is taking place with the Brexit and the fact that we have seen some amount of debt outflows, which have taken place in the past couple of sessions, are you going to start tracking those debt outflows as keenly as we were doing when the taper tantrum took place in 2013 and hence do you expect a significant move coming in on the rupee as well, which could then affect the equity markets?
A: I would split the answer into two parts. One would be the impact on the local bond market and the other one the impact on the currency. The bond market is going to be surely susceptible to outflows in the event of a global risk event happening. That market is more susceptible than the equity market as far as the outflows are concerned. However, as far as currency is concerned, in the context of currency, there are two other factors, which are also at play. The uncertainty related to the nomination of the next Reserve Bank of India (RBI) governor is surely putting some pressure on the currency and we have the looming Foreign Currency Non-Residential-B (FCNR(B)) deposits maturing between September and December, which as per our rough estimate is going to lead to an outflow close to about USD 20 billion. So both these factors in combination are going to put pressure on the currency. In this background if you have a global risk event, which is going to make currency movements go haywire, I think the pressure on currency will be even more.