Nifty to remain range bound; like Idea, GSPL: IDFC Sec

A: Don’t look at Nifty in that sense but we will see a very range bound market between 8000 and 9000 over the next six months. Clearly, last quarter’s earnings have been weak and even this quarter may pan out to be weaker than what most people expect. So, this year we will end up with 5-6 percent kind of growth.

Now, all eyes are again on next year when things are expected to pan out and there are certain signs to show that economy is reviving. However, the valuations have run a bit ahead of time. So, market will be range bound between 8000 and 9000 though I may not say very convincingly that 8300 is the bottom of the market.

Q: In last fiscal, the Bank Nifty had a huge outperformance of around 44 percent and spaces like pharma did extremely well, the BSE pharma index is up more than 60 percent. What would be your top sectoral bets in FY16?

A: This year technology is expected to do better than the rest of the market. We are expecting banking to do better once again. Oil and gas as a sector should also do well. The asset-heavy industries have a better chance to do well than the asset-light industries in the next year.

Q: What is the sense you are getting about the current earnings season? Is that likely to disappoint the market or has the market factored that in?

A: Looking at what was the trend in the last quarter a lot of analysts have adjusted their earnings even in this quarter. So, I would not say that the analyst expectations would be very high in this quarter. They would match what could come about but if they were still to match what could come about it would still be a disappointment for the market.

This does not give a lot of conviction as we go ahead into the next year as to what the earnings growth could be. Most analysts including ours while they have reduced this years earnings growth to 5 percent but next year still remains at 17-18 percent; that has not been cut down as yet. This quarter, if it turns out to be that 5 or 6 percent earnings growth, then it is very likely that there will be some disappointment in the market as such.

Q: What would be the leaders in Nifty as and when it moves to 9000?

A: Within the oil and gas, gas sector is something which we are looking at very positively; both Gujarat Gas and Gujarat State Petronet Limited (GSPL). So, these two companies are where we are fairly bullish on. While we have a neutral stance on BPCL, that is one area where there could be some bullishness.

Over the last few quarters, most of the earnings of oil marketing companies (OMCs) have got upgraded both by consensus as well as our analysts and that is something as a trend which would continue. So, if that happens then the strength remains there in these stocks as well.

Q: What about others – consumers, autos or any of the other interest rate sensitives – financials itself?

A: Financials is something which we like. While the growth story in the private sector banks continue and I don’t see that stopping, the reduction in stress which we will see next year in some of the PSUs is also going to drive the PSU. So, the top two or three PSU banks is something where you will want to be positioned in given the fact that there has been a decent correction in the PSU banks.

Financials as a pack will continue to do well; there is no doubt about it because they are a proxy to asset heavy industry as well. So, if asset heavy industries do well then banks also should do well in that sense.

Q: The one pocket that has emerged as a big gainer in the last couple of weeks is the telecom space and now the incumbents have come out largely unscathed from the spectrum auctions. Should one buy into names like Idea Cellular and Bharti Airtel now?

A: We are bullish on this space. We have been bullish for sometime but given the fact that there was this event of auctions, the stocks had not performed. So, now that event has passed us, Idea in particular has now renewal of licenses for most of its areas for the next 20 years. So, they have passed that big regulatory hurdle which we had seen.

There has been excess bidding but if I look at a 20 years scenario that excess bidding is okay; it should not hurt them too much now. Given the fact that we are seeing Idea increasing its average revenue per user (ARPU), increasing its market share and the data story is doing very well; it is very well positioned to capture the upsides for next 20 years now.

Idea is one stock which we like and it also qualifies under this asset heavy industries definition. To that extent, I can see a lot more clarity that the earnings will move as we go forward. Today, if we get about 15 percent earnings growth for next two to three years, then those are the areas which we should be in.