Bhuvnesh Singh, MD & Head of India Research, Barclays sees the Nifty trading around 6,500 over the next 12 months. In an interview to CNBC-TV18, he said that investors should expect sub 10 percent returns from the Nifty over next one year.
Continuing his bullish tone, he said foreign inflows are likely to be positive for India in 2014 and investor sentiment for Indian equities should continue to remain bullish. Overseas investors made nearly net inflow of over Rs 1.13 lakh crore in the Indian equity market in 2013, even as they turned net sellers in the debt securities.
Sharing views on India Inc’s performance, he expects earnings to grow by 15 percent in FY15. However, downgrades are likely to continue in most sectors barring IT. Singh is not very optimistic about midcap IT player Tech Mahindra in the long-term given its huge exposure to the telecom sector. From the pharma space, Lupin remains his top pick. Meanwhile, he remains underweight on financials.
Below is edited transcript of Bhuvnesh Singh's interview with CNBC-TV18's Sonia Shenoy and Latha Venkatesh.
Q: What is the sense you are getting, do you think this continuous sale of Foreign Institutional Investors (FIIs) numbers should be taken very seriously, after all it is coinciding with taper news as well. So will fund flows be a problem this year for India?
A: The problem with FII fund flows is not only India related, it is the overall emerging market (EM) not only EM, even the global market, the S&P, Topix, all of them are coming off. I think its a normal part of market volatility, by end of the year we do not expect India to be down in terms of FII flows. We would expect FII flows to be positive, even now, the year-to-date FII flows are negative, hardly to the tune of USD 300 million. So it is not a big number in any way.
Q: So how should one approach the actual tapering of USD 10 billion every month, will it be more of just rockiness around that time, around those expectations or around big data like payrolls but largely the flows will continue?
A: I think the flows should continue, definitely there would be volatility around this tapering but the market knows that tapering is happening, we know how it is going to happen; there could be slight changes in the path but overall we know what the end game over here is so there would be some rockiness of course. The focus in this market should be much more on earnings, how the trajectory of the company performance is going, whether we see a significant change in policy front. And these are the things which would drive the market over a 12 month period.
Q: In your note you say that you expect earnings downgrades to continue going ahead. What was your key take away from this quarters earning season and can you just elaborate a little more on what kind of downside you expect as far as earnings go for the next couple of quarters?
A: If you look at the current earning season, we have got BSE 100 earnings growth for the full year, consensus expectations around 8.5-9 percent. If you go back to April, at that time, this expectation was closer to 15 percent. Today when we are charting FY15, we are charting with FY15 expectations of 15 percent with a significant turnaround expected in sectors like industrials, materials, financials. This is where we think the earnings downgrade would come from. Even in the current year and even in the current earning season, the only sector to see some earnings upgrade is IT services. Other sectors like industrials, material, all are still witnessing earnings downgrade. Telecom saw significant earnings downgrades. So the earnings expectations are usually more positive in the beginning of the year, as we go through the year we see the quarterly numbers progression and analysts’ expectations do keep on coming down.
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