See volatile mkts over 2-3 months; like industrials: Ambit

"The only sectors that can disappoint are banking, commodities and technology. Banking because of lack of restructuring window that is not available from this quarter onwards and tech companies have already sounded warnings. The results coming out of the commodities space won’t be exciting either due to global cues," he says.

His top five sectoral picks are industrials, consumer discretionary, auto, auto ancillaries and financials, preferably private companies over PSUs.

His bullishness in industrials stems from the fact that these companies are operating at low capacity utilization. "The moment this goes up, along with a fall in interest rates, there will be a double kicker on the bottomline. If there is an operating leverage, the incremental contribution will straightaway trickle down to P&L," he says. Companies with sizeable debt will also benefit once interest rates come down. 

"The combination of operating and financial leverage will play wonders. But for all this to fructify, the economy needs to start growing. This will lead to a rise in order inflows and will lead to broader economic activity," he opines. 

But the next 2-3 months are likely to be volatile because of monsoon, Parliament's monsoon session, China and ofcourse the results season, warns Sanghavi.

But all’s not lost, a lot of the key drivers can improve sentiment going ahead. Most importantly the likely disappointments that can come through in this earnings season are already factored in, he says. Other than that, if the government manages to clear the GST Bill in this Parliament session, it will be a huge sentiment boost, along with a pick up in monsoon. These cues ofcourse can impact the market either way.

Capex Push:

In terms of capacity utilization, Sanghavi believes the first push has to come from the government’s side. The process, he says has already begun, which can be seen from new orders in infrastructure push such as building roads, transmission and equipment orders, etc. This will be followed by PSUs and lastly private companies.

At its peak in 2011, capacity utilization of the entire system stood at 82-83 percent. Currently, it stands at around 71-72 percent. So before undertaking further capex, the private sector will want to wait for idle capacity utilization, he says. The private sector needs to have reasonable faith in India's growth potential before undertaking capex, he adds.

But in terms of industrial production, the brokerage house says capital goods number in the IIP has been on a better footing in the last few months, which suggests that the base economy is improving. He believes the IIP number will start showing steady growth,  sooner than later.

Global Factors & China:

Sanghavi says any adverse global macro event will obviously have an impact on India, but the quantum is what needs to be gauged.

"India is in a far better position to handle shocks from global events currently. The country's foreign exchange reserves and current account deficit (CAD) position has improved significantly and is rather comfortable. Inflation has gone down and the currency is rock steady."

Against this backdrop, if the US Federal Reserve were to increase its interest rates, India is far better prepared than it was previously, he says. Going by the global macroeconomic scenario, he sees Fed chief Janet Yellen hiking rates anytime between September and December.

If and when that happens, the dollar will strengthen against the Indian rupee and the rupee can depreciate to 65-66 level, he adds. However, according to him, this should be seen as a positive than a cause of worry as it will greatly help exports. Also, he adds that in terms of real effective exchange rate (REER), Indian rupee is overvalued.

But as things stand today, China is a bigger worry than any other global factors. Commodity prices aside, there is a demand shock from China, subsequent to which the global economy is likely to grow at a lesser than expected pace, he explains.

But the problems in China can have a positive impact on India. Even two-three months ago, India was facing outflows from India to China on anticipation of the Chinese market coming into benchmark indices such as the MSCI and FTSE and no one wanted to lose out on that opportunity.

"Previous to the outflow, India stood at 11 percent of total emerging markets investments versus a weight of 6-7 percent. From there it has now fallen to 9 percent, which is a comfortable level and global investors are now once again re-assessing their stand on investing in China versus other economies," says Sanghavi. On a longer-term basis, he says FII inflows into India are likely to remain steady.

Expectations from the monsoon session of the Parliament:

Sanghavi says if the government does not manage to pass the GST Bill in the monsoon session of the Parliament, its implementation will get delayed by another year, which will impact sentiment.

Taxing times:

There is a need to simplify tax laws and the government has to ensure that issues such as MAT and retrospective taxation do not crop up again. He says alternate investments funds are at the receiving end of the stick in terms of tax laws. "We are at a disadvantage when compared to mutual funds vehicles in tax treatment. I simply cannot understand the differential treatment. Unless there is tax parity, it is very difficult to grow."