See Nifty at 6500 ahead; rate sensitives to lead: Citrus

Sanjay Sinha of Citrus Advisors sees the Nifty hitting 6,500 level going forward and expects the market to rally leading up to the national elections, scheduled in May 2014. In an interview to CNBC-TV18, he said that the floor for the Nifty has moved higher from 5,700 points to 6,000 now.

According to Sinha, this rally would be led by rate sensitive stocks belonging to the capital goods, construction, banking and automobile sectors. “Between 2008 and 2013 – the Sensex came down from 21,000 points and retraced back, we found that the leadership of the market was led largely by the fast moving consumer goods (FMCG) and select pharma stocks, but now that will change,” he elaborated.  Meanwhile, the next key event market will be closely watching is the outcome of the FOMC meeting and the Fed’s decision on its stimulus programme post better than expected November nonfarm payroll data. Many experts are of the view that the market has already factored in the impact of QE taper, but Sinha doesn’t agree. He feels that the market needs to take cognizance of the possibility of QE taper sooner than later. If the Fed decides to begin tapering then emerging markets should brace for FII outflows, he cautioned. Also Read: Nirmal Jain sees 5-7% upside for Nifty; picks 5 midcap bets Below is the edited transcript of Sanjay Sinha’s interview with CNBC-TV18 Q: All time high on the Nifty. What is the market mood going to be from hereon till National election? Do you think we can build on to these gains or at least the support has inched higher for the market? A: One leg of the rally of the market was in the expectation that there would be a strong sweep in favour of Bharatiya Janata Party (BJP). That is by and large factored into the market levels as of now. The extrapolation of the outcome of the state elections to the general elections is very dicey. There maybe a lot of events within in the next four-five months which will influence the course of the market other than this expectation alone. I would expect the market to be choppy, but one thing is for sure that the base support level for the market has elevated from 5,700 points to 6,000 points or above. In a run up to the election, the sense of optimism will be stronger and therefore we will see the market rallying leading up to the outcome of the general election. So, the first leg of the more enduring Bull Run that we are expecting in India should happen between now and the next general election. If the result measure up to our expectation then we are on course of higher levels. If not, then there is a scope for the market to repeat the experiences of 2004 for a brief period. Q: What about on the way up, do you think the Nifty can cross 6,500? A: We could go to levels of 6,500 points or thereabouts but what is more important than the nominal level of the index would be the leadership of the market. When we covered the journey between 2008 and 2013 – the Sensex came down from 21,000 points and retraced back, we found that the leadership of the market was led largely by the fast moving consumer goods (FMCG), banking and few select pharma stocks. Now onwards, the leadership of the market will change. We will see some capital goods, construction companies, banks and autos to take the leadership position in the market. In case there are other fundamental factors which support these sectors then the rally may go to levels which maybe even beyond the nominal levels. However, one thing I am confident of that the leadership of the market will surely change from FMCG to rate sensitive and particularly, infrastructure stocks. Q: The strong US non-farm payroll data on Friday has raised the possibility of a token taper taking place even in the December policy. Do you think if the taper happens sooner than what the market was expecting, is it going to impact emerging markets like India a lot or is it already priced in? A: It has not been discounted. We have been not too intoxicated with the expectation that the state election results will have very strong optimistic outlook as far as India is concerned and in that obsession the impact of taper has taken the backseat. So, of course the market does need to wake up to that possibility and take cognizance of that factor. In the months of June and July there was apprehension that the taper would lead to a large amount of foreign institutional investors (FIIs) money getting pulled out from India. On the contrary, we got even more unprecedented flows from FIIs in the following months.  My proposition is that taper will no doubt pull out money from the emerging markets. The question to ask is - is that going to pullout a disproportionate amount of money from India? If you see what has been the experience in the month of November and even leading up to date on December, while the FIIs have pulled out the money from most of the emerging markets, they have committed more investments to the Indian market. You have a political event, which is going to happen in India, this political event has implication of a more profound positive impact on the economic policies. So, if I am a FII, I may not run a simple quantitative measure and apply to all the emerging markets in equal measure. I might choose to have a differential approach to some of the markets. In that background, I would expect that the pullout from India will be relatively less and we might have FIIs investing money in the Indian market. So, that will end up acting as a big booster to the market.