Nirmal Jain sees 5-7% upside for Nifty; picks 5 midcap bets

The underlying market trend is currently positive, so the Nifty is likely to continue its upward journey, says Nirmal Jain of IIFL. This rally will extend to midcaps and smallcaps going ahead and the Nifty might jump 5-7 percent higher from current levels, he told CNBC-TV18 in an interview.  

A day after poll results of the four states - Delhi, Chhattisgarh, Madhya Pradesh and Rajasthan — the Sensex gaining over 450 points and Nifty hitting 6,377 points, an all time high level after five years. Jain recommended market participants to build their portfolio now using a mix of midcaps, cyclicals, high beta and relatively safe sectors like IT and pharma. Crompton Greaves, Havells India, Torrent Pharma, Emami and MindTree are some of his favourite midcap bets. Meanwhile, speaking about the Indian political scenario, he added that one is now seeing structural changes in voting preference and state polls indicate voter frustration with respect to unemployment. Below is the verbatim transcript of Nirmal Jain’s interview with CNBC-TV18 Q: What is your reaction to the all time high and do you think the markets have some more steam from current levels? A: Yes, markets have already rallied today after the exit poll, but the underlying current is now quite positive and bullish. Therefore market may continue positive trend and more than indices, that positive rally will now spread to midcap and smallcap. In the morning today most banking stocks have rallied because they are liquid, but this rally has gained strength then the midcap and smallcap will also start participating. So, this rally will become far more broad based than what is seen in indices alone. Q: A lot of people want to know would that happen in the largecap index itself, some of that has played out but do you think it is now time to maybe shift portfolio to high beta and cyclicals? A: I think so, but one should do it cautiously because even if the economy recovers, market recovers, some of the high beta names that have got high leverage and are under debt trap might find it difficult to recover. I agree that you should get into high beta and cyclicals, but go with caution, do your analysis properly and pick up stocks that have relatively less leveraged balance sheet and a relatively clear visibility of growth if the things come back. There will be more opportunity there for sure. Q: If in case the state election verdict can then be extrapolated to the general elections next year then do you think that the markets can get rerated even further and in that scenario do you think that the range for the Nifty has possibly even moved higher? A: Yes, I think that the most interesting part of this election has been that exit polls have gone wrong because if you look at Rajasthan then the actual results are almost 30 percent higher than what exit polls were. Because the trend is right in terms of positive or in terms of Bharatiya Janata Party (BJP), people haven’t caught up on that. The most interesting feature of this election is that the margin of majority has been much higher than what is expected. Therefore it looks like that the undercurrent of the wave or the anti-current government sentiment is strong. I have a feeling which is more like a gut feeling rather than -- I am not a political analyst as such. Over last twenty years that I have been seeing markets and elections, things have changed a lot. So no longer India is a market where economy is irrelevant as people used to think that give them free food or wave loan and you will get the votes. People don’t want free food but they want jobs so that they can earn their food with respect and the dignity. That is what is coming out. Those issues will be sidelined. People want to have employment, people want to have growth and they will become central to the next election. Q: The key question for the market is that will the government take that lesson, we still have about 4-5 months of the current government, will that lesson be taken out of Rajasthan or do you think there is still a risk that they might in fact be greater popular and that we might have a lame duck government? A: I would say that these things have not worked. So don’t waste time and money in all this. Rajasthan government tried to do everything from distributing tablets to cycles whatever, so they don’t work any longer now. In fact anti-governance might even gather momentum in case they do similar thing. Only one minister has been doing something and has been relatively less affected by election is the finance minister. Therefore, one should go with that perspective control deficit, don’t give freebies, work on getting stalled projects off the ground, work on getting employment rather than free jobs and free money, work on investment because it is a country where one and half crore people get added to work force, so we need new projects expansion so that people can be absorbed.