Nifty to fall below 7500 if Q3 disappoints; GST key: Kumar

Sonia: It has been a rangebound days for our markets around 7,800 level, we have a couple of big triggers lined up, the winter session of the parliament, the Reserve Bank of India (RBI) and the Fed policies, which do you think is the most important trigger for an investor to watch?

A: From our perspective, what happens in the parliament and the winter session will be probably far more important than the Fed rate hike. It happens sometime over the next one-two months I guess and the market is also looking at probably that being the only rate hike before the presidential elections. So from our markets point of view, it is what sort of legislation gets done in the parliament because what we are grappling with in our market is now beyond the macro story.

What is the translation of hope in terms of actual performance and one of the performance parameters, which the market will be looking at is what sort of reform measures go through and to that extent, what sort of expectations and hopes that can be built up.Latha: So the winter session -- if the goods and services tax (GST) amendment bill doesn’t go through -- would be game-changingly bad, if it goes through would it be game-changingly good?A: Game changingly neither way but definitely if it does not go through, it will be a source of disappointment especially amongst long-term investors.Latha: Does 7,500 gets taken?A: That would anyway be at risk because if earnings don’t improve immediately in the short-term, in the next two-three months. If the December quarter earnings don’t come as good as what is being expected because -- now remember that first two quarters earnings have come in worse than expected. So there is a whole lot of burden which is there now on the December quarter as well as in the March quarter.Clearly, the expectations have been coming down but do they need to come down more? That is what the immediate earnings season will determine. So if you don’t have goods and services tax (GST) getting passed or other reforms getting through then some dent in confidence will be there positively but there is also an expectation that it is a reform, which has got a fairly broad-based support so once the politics of it is out of it then probably it will go through. So it not going to through will be probably more of a disappointment factor.Sonia: Let us talk about some sectors and stocks now. One of the sectors of the month has been the auto space. One because of the way the Seventh Pay Commission will put more money in the hands of government employees for spending and two because genuinely this festive season has been good for many of the auto companies. Is there still more potential in names like Mahindra and Mahindra (M&M), Maruti, Bajaj, Hero?A: I think auto in general is coming off low base in terms of demand. So whatever that positive triggers, which are there on demand will help auto. The more riskier play is more on the economy sensitive side in terms of commercial vehicles, those are more linked to the economic recovery cycle whereas the consumption side of auto is more steady, it is better placed and I think that will continue to do steady.If I look at the market right now, we are not looking at massive homerun kind of plays. What I am looking to play is that yes, near-term newsflow on earnings fundamentals are going to be weak in the next two-three months. So what are the sectors and what are the areas that I can play, which within that context have better growth or better potential for returns.So auto will be one of them, IT services will be another one of them and banks also to some extent will be there because of being core segment of the market.Latha: What kind of banks? You would still play only the private sector banks?A: No. There was a long period of time, maybe five years or more, where there was excessive amount of concentration of attention and money on private sector banks. So clearly the public sector banks have whole lot of issues long-term to resolve but what we have seen is greater balance of interest between private as well as public sector banks; and that is how this strategy should be going forward as well.Latha: You would pick some of the public sector banks.A: Yes. I think the worse is a clear-cut call earlier that it is only private sector banks. There now has to be a greater balance in the portfolio between public and private sector banks because problems are there, problems are also known and there are some attempts at solutions and the valuations are cheap on the Public sector undertaking (PSU) banks side. So eventually that balance would be there and even in terms of balance of flows into the banking sector, there will be greater flows into the PSU banks.Sonia: What about the cement space? There is lot of hope now that once the capital expenditure (capex) cycle revives; cement will be multi year cycle on the upside. Is that your view as well?A: If I was to play the capex cycle or if I was to play the recovery cycle, then probably in terms of multiyear plays, I have better options in terms of capex construction and equipment companies or you have power transmission companies. Those sort of companies which will, as and when the recovery in capex is there,  be there for longer. Cement is early play in terms of construction activity picking up; it will be more of a steady play, rather than a multiyear sort of a full cycle play.Latha: You are not yet buying it.A: No, in this near term it is a steady play but what she asked about the long-term capex cycle, multiyear plays, that is where the equipment, the construction, the engineering procurement construction (EPC) players are probably better positioned to benefit from that.Latha: Would you bet that this earnings season could be that growth generating season where perhaps upgrades will be more than downgrades?A: No I would not. I do not think December quarter will be the quarter, which will mark a turnaround in earnings. The best that we can hope for is that the downgrades stop. I do not think you have enough positive drivers or triggers that we can see on the ground, which suggests that the December quarter will be so strong that it will mark a turnaround in earnings. If it meets up to whatever the lowered expectations which are there for the market, that will be a good start.Sonia: In the last couple of weeks, we have seen a lot of sectors that have given you trading pops; whether it is aviation, sugar, some of these textile names, are these just trading pops or are there any investment ideas in these spaces?A: These smaller spaces in the market tend to be kind of driven by single factors, single drivers. So in aviation you have had obviously a big listing, which has happened and obviously aviation has been helped out by oil. So I would say these are sector specific trends, they are rather small sectors of the market and when there is not much momentum happening, which is on the broader market, then these smaller segments tend to get into focus but they are not relevant or too significant for the market overall.Latha: What is the one-year call on the Nifty or is it that Nifty is the wrong place to look for growth?A: Growth and the market is going to be led by larger companies. So be it the earnings recovery or whatever is the story, that has to be led by the larger companies. Standing as I am today here, if I am looking at 2016 while the early part of 2016 will be quite challenging, I am hopeful that sometime in late 2016 we should see a level of 9,500 on Nifty simply because I am expecting that the growth will come back, the earnings growth will be better than what it is today and the valuations are middling now. Valuations are at or about average.In the context of globally, all the other markets, which are available from the investor’s point of view, India is still an attractive proposition. So while we may quibble about our challenges, that investment cycle is not turning, earnings are not there, bills are not getting passed, whatever, but in the context of other markets globally, India is not a bad place to be. So I am hopeful that we will see a level of 9,500 on Nifty or beyond in 2016.