Not bullish on mkt, yr-end Sensex target at 20250: HSBC

Jitendra Sriram, MD & Head of Research, HSBC India, who is cautious on the Indian equity market at the moment, continues to stick to defensives. Speaking to CNBC-TV18, he said, the market is close to its peak and the broking firm is not bullish on it.

HSBC India has a year-end Sensex target of 20,250, which is much lower than the current 20,800 odd level. According to Sriram, street’s estimate of 15 percent FY15 earnings growth is over optimistic and feels that realistic earnings growth expectation should be 8 percent. Meanwhile, he is betting his chips on IT and healthcare sectors and prefers to stay away from auto stocks and public sector lenders. From the consumption space, he is negative on HUL but likes ITC. He expects the Reserve Bank of India (RBI) to announce one more rate hike. India's current account gap narrowed sharply to USD 5.2 billion, or 1.2 percent of GDP, in the July-September quarter of 2013-14 aided by turnaround in exports and decline in gold imports. Given the CAD data, one can consider investing in export oriented sectors, he recommended. Rupee deprecation in the second quarter has made Indian capital goods sector competitive versus Korean and Chinese peers; also sentiments related to upcoming elections have given a boost to this otherwise beaten down sector. HSBC India is overweight on L&T and IL&FS Engineering. Below is the edited transcript of Jitendra Sriram’s interview with CNBC-TV18 Q: It has been a good run for the markets, we came off a tad bit from those highs but now we seem to be veering towards that once again, are you bullish at this point in the market and if yes, what would the portfolio approach be? A: We are not bullish on the market in fact we think it is probably close to its peaks. Our index target for this year December end is about 22,050, a small downside to the market from these levels. The growth for next year is also forecasted at a much more modest rate, 6-7 percent from here. Broadly we would be much more positioned towards defensives, IT, healthcare again continue to be some of the names that we continue to like. We would be much more cautious on state-owned banks, discretionary areas like autos etc so these would be the areas we will be concerned about. Q: There is this big binary event that is coming up on Sunday when the four state election numbers would come out assuming for the moment that the market gets what it wants, do you think the market permanently or at least for the next few months trades at a higher range? A: It is an interesting point. I do take your point that market is probably already pricing in some kind of a favorable event in whatever way it perceives it right now. My issue is that you could very well have a scenario of a buy-on-rumour sell-on-news coming through post December 8. So in case if there is a kind of more rather than having a polar verdict you have a much more balanced verdict, you could have a situation when the market eases off. Second thing is also the point that how relevant are these state elections, 70 seats out of 540, can you really draw so much of a trend from that? _PAGEBREAK_ Q: Mean reversion is what you are saying that after this binary event? A: Yes. Q: The other event that we are getting is the non-farm payroll numbers, assuming for a moment - I am just trying to create a bullish scenario that is all - those numbers come in lower than what the street expected and therefore the tapering is pushed back, we are also looking at FII numbers which are simply refusing to peter out. Do you think if that tapering timetable is pushed back because of the non-farm payroll numbers to perhaps February or March then is there a chance that the market will trade at a higher range? A: I would say that in case taper gets pushed back, the market could sustain the level that has already reached for some more period of time. In this euphoria around elections, some bit of attention has been lost on global factors. But the question is anybody cannot keep expanding the balance sheet till perpetuity, it has to happen at some point of time. I would reckon that if it is not going to be December end, it is probably going to come through Q1 end or Q2 end. It will start at some point of time. I don’t think market is today positioned for that eventuality. Q: How important would be the inflation numbers and a likely rate hike from the Reserve Bank of India (RBI), would that be a trigger for the markets to trend lower and where would you advice the first sales at current levels? A: Definitely we are budgeting at least one more rate action from the RBI whether it is a vanilla rate hike or whether it is tempered by little bit of MSF easing probably remains one variable, which we don’t know yet. At least the yield seem to indicate that the market maybe pricing the rate hike, but may also be expecting some soothener coming through from a marginal standing facility (MSF) easing after that. I would still say that typically the sticky assets and so on are a lag indicator of an economy, so banking is something clearly avoidable. Given our current account deficit (CAD), I would much more prefer the exporting segments. I would probably reckon that maybe about 1,000-1,500 points is one could probably start turning a little bit more positive from a longer-term point of view on India.