Vibhav Kapoor, Director, IL&FS, believes the market currently is over-bought and fairly valued. It needs to consolidate for some time, he said, adding that if the monsoons are as good as promised then reaching Nifty levels of 8700-9000 by March, 2017 is possible. The markets will consolidate in the near-term till the British referendum decision which is slated for June 23. After that, the markets would show a path forward.Kapoor agrees with most experts that the market is expensive and so one should not chase it at these levels. Buying on dips would be a right strategy for those bullish on the medium-term, he said.Earnings, he said, have been better than expected for the last quarter, and would even accelerate going forward in FY17 and FY18 on the assumption that monsoon is good. Otherwise all bets are off.Crude, according to him, has topped out and is unlikely to go above USD 50-55 per barrel. So he does not see it as a threat to the economy or for sectors and stocks that have benefited from lower oil prices.Moreover, if monsoons are as expected, then rural-oriented sectors like FMCG, automobiles and two-wheelers will be in favour and may give good returns over the next 12-24 months.The rally in sugar could be a one-off because it is a cyclical industry dependent on various factors happening in India, as well as production in Brazil. Entertainment stocks will see a steady growth on back of digitisation, on the assumption that the economy will grow faster and advertisement revenues will go up.From the financials, he is still not upbeat on the PSU banks but thinks private banks, NBFCs and housing finance companies will continue to perform.
Below is the verbatim transcript of Vibhav Kapoor's interview with Latha Venkatesh & Sonia Shenoy on CNBC-TV18.
Latha: We are back to 7,950-7,980 where the market has been hitting resistance. Is there anything in either the political, the exit polls or in the earnings that will help us cross 8,000 mark?
A: The earnings have been better than what was expected but Q4 earnings were expected to be better than the last few quarters and that is playing out well, so that will give some impetus to the market going forward but if you are talking about very short-term, the market, as we discussed last time, maybe a bit overbought maybe fairly valued for the time being because while we are positive in the medium-term, we are looking at an index level of about 8,700 to 9,000 by March of next year, which is about 10-12 percent away from here. So probably the market needs to consolidate a bit more at the current levels. We also have monsoons, which need to be very good if we have to achieve those levels, so probably the market will wait to see how the monsoon is panning out. And globally, we have British referendum which is going to play an important role as to how the market pans out after June 23. So my sense would be that you would have another month of consolidation till the third or fourth week of June before the market decides how to move ahead.
Sonia: The market at 17 times does not look cheap by any means. How does a retail investor then approach this market? Do you still continue to buy on dips or now do you pause a bit, waiting for a better entry point?
A: Last time also we discussed that do not chase the market at these levels and it has been consolidating now for quite some time and as I said we should consolidate for some more time. So the market is fairly valued and as you rightly said about 17 times next year, so it is not cheap. Therefore, no point in chasing from here because you are only looking at 10-12-13 percent returns over the next one year. So the right thing would be to wait for dips; buy on dips is the right strategy at this point of time because we are bullish in the medium-term and therefore, you would get good returns over the next 12-15 months but you need to buy at your levels and not what the market is dictating to you.
Latha: Do you think in the way in which crude prices are running now, some kind of stocks that have been finding favour should now be left alone, for instance paint companies, chemical stocks, all those have been spearheading the rally for the last six months. It is time to take profit?
A: I think crude prices still haven't reached those levels where they would start to be a matter of concern either for the economy as a whole or for some of these companies you are talking about. However, in any case we were positive on crude, if you remember about four-five months ago when prices were at USD 25 per bbl. I think now for the time being crude prices are probably near topping out and I do not think I would expect crude prices to go beyond USD 50-55 per bbl and then trade in a range after that. So, I wouldn't be too worried about it.
Latha: What are your favoured sectors at this point in time? You say the market is fully valued, so where will your incremental purchases be?
A: While they are fully valued at this point in time but we do expect the economy to revive faster going forward and we do expect earnings growth to accelerate going into FY17 and particularly into FY18, of course a large part of this is predicated on the assumption that the monsoons will be good and all these bets would be off, if you didn't have a good monsoon, but if we did have that then over the next 12 to 24 months you could get substantially good returns in a lot of sectors which are particularly rural oriented because we expect rural demand to improve significantly going forward, so two-wheelers, some automobile sector, fast moving consumer goods (FMCG) are the type of sectors which we would favour for the next 12 months. Sonia: There are couple of other interesting sectors that are seeing heightened valuations now whether it is entertainment, the likes of Zee Entertainment Enterprises, Sun TV Network etc or whether sugar, which has suddenly come out from the woodworks in the last fortnight or so. Would you invest in any of these sectors?
A: Sugar is a one-off case, it is a cyclical industry; a lot depends on what is happening, not only in India but in Brazil because they are the largest producers. So you need to time yourself there, a lot of upside is already in the prices.
As far as other sectors like entertainment and all are concerned, it is a factor of the assumption that the economy will start to grow faster and therefore advertising revenues will grow faster, in fact they have been growing pretty well in the last 12 months also digitisation is going to improve the subscription revenues over the next three-five years. So that sector is something which probably has a steady growth going ahead.
Latha: Which part of the finance stocks would you buy? The favoured private banks do not look fully valued to you?
A: They do look fully valued at this point of time but the public sector undertaking (PSU) banks are still in a pretty bad shape and Q4 results have done nothing to make us assume that things are going to be better for them at least as far as stock prices are concerned. So the PSU banks are not going to do well for some more time. I am talking in terms of stock prices. There could be further downside there and they are short of capital and therefore, the private sector banks are definitely going to gain more market share. So, if you are looking at a slightly longer term horizon, not a six-nine month horizon but a longer one then there could be substantial growth to be had in some of these private sector banks and therefore they could continue to do well and also the housing finance companies and non banking financial companies (NBFCs) sector continue to look good. In short, in the finance sector everything but PSU banks would definitely qualify for a buy.
Latha: Two kinds of initial public offerings (IPOs) have done well. One, healthcare related stocks like Dr Lal PathLabs and Thyrocare Technologies and there are small banks which have got licences, the Equitas Holdings and Ujjivan Financial Services. You like any of these?
A: Healthcare of course, some of them look interesting though not attractive going by valuations; some of their valuations are very high.
I do not know about the payment banks. I think it is too early to be sure about what their future is going to look like. Reserve Bank of India (RBI) is going to licence so many more banks, so that is a sector which I would put on watch for the time being but definitely not buy.
Discover the latest Business News, Sensex, and Nifty updates. Obtain Personal Finance insights, tax queries, and expert opinions on Moneycontrol or download the Moneycontrol App to stay updated!
