Sensex 22,000 target remains intact: Ambit

Equities may have witnessed a bounceback lately but global and local factors continued to remain stacked against them and a turn in sentiment will take a toll on equities again, says Pramod Gubbi, Director of Institutional Equities, Ambit Singapore.Ahead of a key conference, the Ambit executive said overseas investors had been overweight Indian equities and in the case of risk-off, Indian markets will be as much hit as other emerging markets."As a result, our Sensex 22,000 target remains intact," he said.Below is the verbatim transcript of Pramod Gubbi’s interview with Latha Venkatesh and Sonia Shenoy on CNBC-TV18.Latha: You are standing on the threshold of an Ambit conference, what is the sense you are getting from foreign buyers? We just had JP Morgan saying that the foreign buying over the last week is accounted for by the fact that there was no capital gains tax and the fiscal prudence was maintained but are these positives good enough for more foreign buying? A: Unlikely because I think a part of it is definitely attributed to the fact that there were no real self goals or outright negatives coming out of the Budget. However, if you look at the flows, India hasn’t been alone in terms of the gains from coinciding with the Budget date really. There have been flows into emerging markets in general and India has benefitted a bit more than its fair share perhaps also reflecting the fact that India was one of the poorer performers in the run up to the Budget from the beginning of this year. So, that sort of trend has continued.I don’t think it has been a disproportionate because of the Budget. The Budget has by and large been a non-event as far as the foreign institutional investors (FII) buying is concerned. Sonia: Very interesting conference lined up as Latha was telling us in New York and in Boston on the March 10 and 11 and a lot of big companies, the likes of Bank of Baroda (BoB), etc are participating. Tell us a little bit about what the agenda at the conference is and what the mood is like ahead of the conference? A: Agenda has always been to showcase good quality Indian companies trading at reasonable valuations run by good quality management teams which can deliver value over the long-term; that remains the agenda and we also have macro expert talking about what is happening with the policy situation in India. So, that also covers the agenda for the top-down investors. The mood is quite up beat because I think there is enough interest in good quality companies as far as foreign investors are concerned and India has always managed to pull up such companies despite macro conditions. Looking at the investor base attending the conference, it does look like there is a significant bottom up approach coming into looking at Indian equities. So, it is an interesting time for us, the response has been good given the lineup, so, I think we should be able to see continued interest as far as bottom-up investing is concerned. Latha: Your target used to be 22,000, we did have a look-in below 23,000 but thereafter the index has rebounded by about 10 percent. You still stick to that 22,000 mark, we might get there? A: I don’t think much has changed for us to change that target of 22,000. Yes there have been a few positives particularly as far as the PSU bank reforms are concerned. However, that is just the beginning; we think there is a lot more to be done. We will watch that space closely because that can influence the nature of the macro economy as well as the financial systems ability to support in investment cycle as and when we get to that stage. So, that remains a crucial trend. Also, the global phenomenon, because Indian markets particularly in the last few months have been driven largely by global cues and given the already bullish positioning of global investors in India, any sort of negative triggers globally, India is likely to suffer as much if not more than the other emerging markets (EMs). So that will continue to be a key driver. We are watching that situation closely as well particularly how the Chinese situation evolves. Any continued devaluation will have another flurry of negative sentiment and India is unlikely to be immune to that. So, on both the local and global front, I think that 22,000 target still remains intact. Sonia: Just wanted your views on the flows situation as well because FIIs have bought about Rs 6,50,000 crore in the month of March in the Indian markets and we were speaking with a gentleman from Morning Star earlier who mentioned that the contribution could be from offshore funds which is a bit more stable in nature. Is that the sense you are getting as well or do you think a larger chunk of this money could be the hot money which easily flows in and out? A: I think it is a mix of both. We have been highlighting the fact that the negative sentiment for emerging markets as asset class in general is likely to see continued outflows from that asset class. We have seen that India has been relatively immune to those outflows because emerging market investors have continued to increase their weight in India until December 15. It is only in the first two months of this year we have seen them pairing some of that bullish positioning. So, whatever we have seen in the last week, the Rs 6,50,000 crore, is perhaps a reversal of that selling in January-February. However, the structural theme remains, if you are a global investor looking at participating in India which even now stands out relatively better amongst most EMs, the ideal way to go through is a country specific product, an India dedicated offshore fund rather than go through any of the ETFs or a regional or an EM vehicle. So, I would think the flows, the way you describe, is a mix of both. Latha: I notice that in your list of speakers you have Bank of Baroda and Development Credit Bank (DCB). What is the view on financials itself, do you think that some public sector banks deserve a look-in at least because of valuations or because of policy changes? A: I think it is best to adopt a bottom-up approach here. So, we are looking at bank-to-bank, case-by-case and certain banks certainly have done a bit more than others and deserve that look-in particularly given the valuations they are in. There is a lot more to be done from a reform point of view as far as public sector banks are concerned like I said earlier; that is going to be the driver for the PSU bank basket as a whole. However, there will be an odd one which perhaps has already seen some of those reforms take place in the form of private sector executives come in, board becoming little more independent. Perhaps if the Bank Board Bureau comes into action and implements some of these reforms, you could see that affecting other banks as well. However, I think it is about time one takes a positive view. Latha: Any chance at all that you will see an earnings upgrade or at least a stoppage of earnings downgrade in the Q4? When do you see an earnings upgrade?A: Very difficult to call really because the demand situation has not changed on the ground and the tailwind that we got from the input cost deflation, also seems to be abating or in fact reversing in some ways and also statically speaking, sooner or later we will get into the base. So, on a year-on-year (YoY) comparison as far as EPS growth is concerned, you may not get that benefit for too long. So, to that extent we are quite skeptical of any meaningful earnings growth recovery at least for the next two quarters.(Interview transcribed by Priyanka Deshpande)