Urban consumption, roads, defense 'themes for 2016': Jaipuria

The first half of 2016 will be challenging for market due to the happenings around the global, is the word coming in from  independent market expert, Jyotivardhan Jaipuria.Talking on the themes for 2016, he says urban consumption is a good theme to look out for and one can play that theme through the auto sector. Other themes for 2016 could be the road, railway and the defence sectors.With regards to IT, he says despite the currency tailwinds, revenue growth is likely to be subdued for the IT companies.Going forward if one were to see witness correction in midcaps then that should be utilised as an opportunity to buy, says Jaipuria.Below is the verbatim transcript of Jyotivardhan Jaipuria's interview with Sonia Shenoy on CNBC-TV18.Q: It has been very tough ride for equity investors and traders at the start of the year but do you expect this roller-coaster ride to continue?A: The early part of the year, it will continue because when I had come last time on the programme in December, I had said globe will create a problem for the markets early part of the year. I didn’t think, it would happen that quickly but I think there is still more devaluation left in China. So that is something which will remain the focus of the market at least in Q1.Q: Will that be China specific you think or is there a fear that once again our markets may get roiled as well?A: My fear is that of China goes with the steepest sort of devaluation 5-7 percent then it won't be isolated because then what you start getting is in some sort of currency war where every other country tries to devalue. We saw a glimpse of it in 2015 also in July when China did that devaluation of the currency, immediately most of the countries joined in and ultimately China relatively ended up appreciating their currency because most countries had a devaluation, which was much more than China. So that is the thing when these global factors starts playing out. No country remains isolated today.Q: What is the approach now? In terms of sectors, what would you be bullish on in 2016 because apart from Reliance, there seems to be no other leadership sector?A: I think two-three things will play out. So if we think of Q1, I am still worried about the currency because of what happens to China. So to that extent though pharmaceutical is not a cheap sector, I would still remain in pharmaceutical just against the currency, some of these stocks have come down quite a bit in the last few months. So to that extent, I think that would be some sort of safety.The other thing which will play out is the whole urban consumption theme. So I think that is something which will play out this year, we have a lot of factors, one of the Pay Commission, second is the fact that interest rates have come down and third is the fact that inflation has come down so to that extent disposable income in the hands of the consumer has gone up. So I think that whole urban consumption theme will play out of course in terms of big stocks, you have the auto pack which is probably the biggest thing one can play there otherwise you have to look at some more midcap type of names. So that is one thing which will play out.Second will be the users of commodities because you have seen commodity prices come off quite a bit. So for a lot of companies even though the topline does not go up, you will have margins improving because your raw material prices have come down. So that is the other theme, which will play out.Then there are pockets, which probably are not like big cap but the whole infrastructure pack -- roads is one thing which is picking up steam. There is hope that I think that railways, defence and some of these other sectors will also pick up. So that will be the other theme for this year.Q: Coming to individual stocks, wanted your thoughts on how to approach this whole Infosys versus Tata Consultancy Services (TCS) argument because clearly Vishal Sikka has worked his magic on the stock and on the performance but TCS has also become cheaper compared to what it was three-four months ago. So where do you see higher value now?A: This is an industry, which ultimately is starting to slowdown. So I won't say it is maturing but probably relative to where it was, the growth rates are going to be much slower in the future. If one particular company does something internally as an efficiency or some strategy change, which leads to higher growth then that company will perform and outperform the sector both in terms of earnings growth as well as the stock price.So that is what we have seen here that there were some internal changes in the company, which have led to performance which is much faster than what the industry has been witnessing especially at a time when the industry was having a bit of slowdown.Q: That is about IT. What about Reliance itself, that stock has given you about 20 percent upmove in the last five months, everyone is eagerly awaiting the numbers come in on January 19, but do you expect Reliance to take leadership in the next three-six months for the market?A: It is like a simple story. So it is basically again very internal to the company. You had a huge capex, which was going on for the last few years and lot of that capex is going to bear fruits this year where you have a lot of these capacities coming on stream. So that will lead to a sharp increase in earnings just because of a sheer volume growth, which is coming for you.So that is something which will play out. Again it is a stock which is not very well owned to that extent. Most people are underweight on it at a time when earnings growth is going to pick up and to that extent, that will be a stock which probably does well.Q: Any other stocks on your list or in your shopping basket that you expect that could do well maybe not to buy now because of the volatility but in the due course of time?A: You will probably get your opportunities in some high quality stocks as the markets go down because when markets go down, things tend to become cheaper and probably some part of the baking space is less immune to the non-performing loans (NPL) worries and when the markets go down, that is something one can look at also.The other thing is the midcaps because that is what has been holding up the market for the last one year. Midcaps are probably near-term more vulnerable than the largecaps to a correction but probably if you get a decent correction in the midcaps then that is probably where the best money will be made over the next 12-18 months. You have to wait for correction and I think you could get a correction, which is quite sizeable in the midcaps.