These four triggers will help the market going forward: Religare

The fundamental improvement in the Indian economy "has just started" and going forward, four triggers will help equity markets in a big way, says Gautam Trivedi of Religare Capital Markets.Speaking to CNBC-TV18, Trivedi said a good monsoon, the rollout of the Pay Commission hike ("it will result in a USD 50 billion stimulus over 2-3 years), passage of GST Bill and the appointment of the new Reserve Bank governor will be a positive.And why is the new RBI governor a positive? "The new RBI governor will cut rates. Let's face it. India has got the highest interest rates among the world top 20 economy," he said.He also lauded the government for reportedly deciding to hike kerosene prices by 25 paise for the next eight-nine months. "We are really impressed. This government has done what no government has dared to do."Talking about his sector preference, Trivedi said he was positive on auto, midcap pharma and private banks.Below is the verbatim transcript of Gautam Trivedi’s interview to Anuj Singhal & Sonia Shenoy on CNBC-TV18..Sonia: What is the anecdotal evidence suggesting? Is there enough fundamental improvement on the ground to back this rally that we are suggesting?A: Honestly the fundamental improvement has just about started. It is early days and the government is clearly doing all the right things to put the economy right on track given that we had not much work done over the previous ten years. But you essentially got four major triggers coming up for this stock market and of course the economy. First is the good monsoon, clearly we are seeing evidence of that at least at this point across more major parts of India.The second is the implementation of seventh pay commission which is a huge positive. So, our estimates at Religare are that this would unleash USD 50 billion over the next 2.5-3 years of the fiscal effective fiscal stimulus. So, that is going to be massive, covering 10 million government and state and public sector undertaking (PSU) employees all put together. So, that is the second positive.The third positive of course is going to be the passage and implementation of Goods and Services Tax (GST) which we believe now seems to be closer to reality than it was probably 12 months ago and the fact that we are going to have a new Reserve Bank of India (RBI) governor and whoever that person is he or she will invariably come in and start to cut interest rates. Let us be honest here, India has got the highest interest rates among the top 20 economies of the world which just doesn't make any sense.So, given these four factors we are actually very bullish on the economy, bullish on the government and bullish hence, on the stock market.Anuj: The other news of course has been the Rs 0.25 kerosene price hike monthly. How do you see that? Do you think it can bring focus back on beaten down names like ONGC and Oil India?A: I don't want to comment individually on stocks but the fact of the matter is the government has done basically which no government in the past dared to do. So, we have got to give them full credit for going after kerosene subsidy which is going to be viewed upon massively positively by the investor community. Because honestly we were discussing it in the morning meeting as well as on the equity desk at Religare and frankly people are really impressed that this is actually finally starting to happen.Anuj: Pharma stocks have done well over the last few days. Do you get a sense that they have bottomed out and they traded below median valuation for fair period of over last 2-3 months but even now they are not as expensive as they historically were. Do you find valuation comfort here?A: Actually we do find valuation comfort. Our analyst Praful Bohra prefers the midcap valuation given the valuation discount that they are trading to the large caps. But the reality is that when the Food and Drug Administration (FDA) strikes these are usually the best times to buy these stocks versus fretting over what will happen and how long will these carry on. The reality is to buy a Lupin today let us look at the evidence here. The stock has done phenomenally over the last 10-15 years as has the entire sector. Of course Sun Pharma included and Dr. Reddy's included. The point being you get pockets of opportunity to actually go and buy these stocks and these stocks continue to outperform and do significantly well over the next 5-10 years but if you are a long term investor don't panic but this is actually the right time to come and start accumulating positions in large cap pharma in India.Sonia: Before we were talking about pharma stocks you were telling us about how the government's ability to reduce the kerosene subsidy is a big positive and you guys were speaking about it in the morning meeting. What else are you guys talking about, what are the themes that one can play now, over the next 6-12 months?A: The themes that we still like are auto. Clearly the two wheelers have a bit of an air pocket in terms of monthly sales but the reality is with the implementation of seventh pay commission and good monsoons the two wheelers sector will benefit. So, Hero MotoCorp is the top pick within the two wheelers followed by Bajaj Auto.We like even the CV space and we think that the greening of India has only just begun that is lead clearly by our Prime Minister and the PMO thereafter but of course you have got the Supreme Court, you got the National Green Tribunal (NGT) which are really coming down heavily on pollution in India and as a result at some point you will heavier strictures coming in for CVs that are 15 years and older. There has been a lot of press around it and that is going to be a massive positive on Tata Motors, Ashok Leyland and Eicher Motors. So, that is the space that we like because the replacement demand can be significant if this is truly implemented. So, we like autos as well. We are underweight consumers, that is the sector I was recently on a trip to the US and a lot of people that I found there were actually underweight consumer as well. We believe that is one sector that has hit peak in terms of margins and also in terms of valuations.Anuj: What about metal names because that is the one space where we have seen huge gains over the last few days. What is your position there?A: We think the rally has been unprecedented. We were discussing Hindalco this morning and the stock performance if you pull up the chart has just been outstanding. The question really is does this last for another few months or we have seen the best of the rally behind us. So, we don't know, the jury is out on that and that is going to be again on global factors but a lot of people actually have not been able to participate in the rally. So, there could be still some follow on buying.Sonia: We have some really stable numbers come in from IndusInd Bank. How are you positioned on that name and any other private banks that you increased allocations in to lately?A: If I look at the pecking order in terms of institutional investor interest in the Indian overall financial space let us start off with private sector banks and in the pecking order non prices for guessing, the first of course the HDFC Bank followed by IndusInd Bank, so that has been the second preference. Third has been Kotak Mahindra Bank. So, these have been the top three. There is a lot of interest also in YES Bank and we have probably the highest target price on street of Rs 2,000 over the next three years. So, that remains one of our favourites.Thereafter you straightaway have the microfinance companies. So, you have seen a massive interest in the MFI space over the past 6-12 months and of course a lot of these stocks are starting to hit their foreign ownership levels. Then comes the Non-Banking Financial Companies (NBFC). So, PSU banks unfortunately remains minimal interest at best. Even from a trading perspective people are shying away from investing in PSU banks.