Upside for mkt capped; overweight on IT: Birla Sun Life

Factors like stable rupee, tapering fears subsiding and RBI's easing liquidity measures could help hold the market at current levels but at the cost of growth says, Mahesh Patil of Birla Sun Life AMC in an interview to CNBC-TV18.

He further adds that single-digit growth could impact earnings and would down on market capping the upside. Unless, structural changes like reforms or expectations of election could take the market to a new level. Clarity in terms of how political environment is shaping up will drive market in the next couple of months. They remain overweight on IT stocks on back of rupee stabilising and the deal pipeline looking much healthier. Below is the verbatim transcript of his interview on CNBC-TV18 Q: This unexpected rally that we saw has more legs as the fundamentals seem to improve? A: If you look at the major concerns like rupee depreciating, rupee volatility, interest rates and US tapering.  However, now it looks like US tapering will be deferred, because with US growth being a concern expectations are that tapering might not happen in December as well. Also with the cut in MSF rate, there will be easing of short-term, so on the margin that is positive. Rupee too looks like it would hold on at these levels because of the measures taken by RBI has taken. Moreover, looking at the recent trade deficit data it looks like the current account will be a much lower. Therefore all these factors could hold market at these levels but it is at the cost of growth. We have seen growth slowing down, gross domestic product (GDP) number coming weak and also estimates for this year are likely to be much lower than what people were expecting. Slower growth will have an impact on the earnings and we expect growth to be around 4-5 percent. Even for the full year it could be a single-digit number although as per consensus it was expected around 12 percent. Therefore slow down in growth will weigh down on the market and cap the upside from these levels. Unless, we see something structural like reforms or probably it could be expectations of elections which could take the market to the new level.  However for the time being market should remain stable at around these levels. Q: 6,000 could be on the cards for the Nifty, in the few weeks up to Diwali where would you see the Nifty trade and what would be the key trigger for the Nifty. Would we be reacting to global cues or maybe improving macros? A: It is difficult to predict because there are lot of global factors to look at like the US debt ceiling, which an important event. Although the probability is that we won’t see that go through. Given that on the global side we do not see any major big developments, the focus would come back from next one month perspective to the quarterly numbers. Numbers will start to kick in with Infosys. We have also seen a lot of volatility in the rupee in the last couple of months, so, how that impacts corporate earnings and how the hedges are, that would lead to some volatility in the corporate numbers. These are the factors which could drive the market in the near-term. From a medium-term perspective we are getting into a phase where politics will start to play an important role, especially at this point in time when we have seen a dramatic slowdown in our economy and investments have taken a beating. The confidence building exercise has to start and if you want to see growth coming back significantly from these levels then some clarity in terms of how the political environment is shaping up will drive the market in the next couple of months. Q: Would you tank up on Infosys before the numbers or for that matter IT as a sector or is the strength in the rupee now going to get to a plateau on IT stocks? A: The IT stocks have been doing well on two factors; one is rupee which is aiding them and two, is the fundamentals. We have been talking to a lot of IT companies and the outlook for IT in terms of growth for this year looks to be much better. Lot of companies are signing new projects, so the deal pipeline is looking much healthier. That gives greater visibility in terms of growth not only for this year but going forward and that should hold on in terms of IT valuations for these stocks. I do not think analysts were factoring in rupee above 60/USD levels. To that extent we do not expect any downgrade because of rupee appreciating from what it has done in the recent past so that but volume growth looks to be a much better and that should be the driver for IT stocks from a medium-term perspective. So, we are positive on the ssector, we remain overweight on the IT stocks.