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Last Updated : Jul 04, 2016 06:11 PM IST | Source: CNBC-TV18

Nifty looking at a 15-20% uptick this fiscal year: ICICI Pru

Global push along with a robust monsoon and GST Bill possibility, Manish Gunwani of ICICI Prudential expects the Nifty to grow by 15-20 percent in FY17.

With a sharp rally in Indian stocks owing to a good recovery in emerging market indices, Manish Gunwani of ICICI Prudential expects the Nifty to grow by 15-20 percent in FY17.

"Rally in the stocks are a result of a bounce-back in EMs. There is a global push, and monsoon and GST Bill possibility also look robust," he added.  

He said that the ongoing macro recovery in India will eventually benefit the PSU banks the most.

"There is a huge financial leverage in the PSU banks space and the debt-to-equity ratio is 15:1. How the government goes about consolidating the whole space, should be closely watched as it will help pick up quick asset recovery in these stocks," he said.
He is also rooting for the pharmaceuticals sector and has increased exposure in some of these stocks after they gained value and believes the space to be a key driver of exports.   

He is also bullish on equity space, and expects equity to remain the best asset class.

Below is the verbatim transcript of Manish Gunwani's interview to Sonia Shenoy & Anuj SInghal on CNBC-TV18.

Anuj: This market is climbing the wall of worries. Rexit, Brexit, the market does not care and it is higher than what it was before all these worries started. Do you think this market now has the potential to keep making money and keep seeking higher levels?

A: I guess it has got a sharp upmove recently. So, maybe there is a chance of consolidation here but essentially if you look at it from a macro angle for the Indian economy everything is fine. Lot of the rally has got to do with emerging market (EM) markets themselves bouncing back because if you look at even commodity currencies they are up 18-20 percent from the lows and even the stock markets in EM markets have done well. So, it is bit of a global push but the domestic outlook also with monsoon and possibility of Goods and Services Tax (GST) looks quite robust. So, while valuations after this upmove obviously are not super cheap there is nothing to suggest that we will see a big correction right now.

Sonia: The oil and gas space is just buzzing today and within that space Oil India is the one that you guys increased weightage on. What are the triggers now?

A: We don't want to comment on specific stocks but if you talk about the space on a generic basis essentially when oil went down to USD 30/barrel our call was that it is not a sustainable price level. Any commodity if it goes beyond a certain price range obviously the capital expenditure (capex) in that commodity stops and supply kind of goes down. So, as far as the oil level itself is concerned it is just a normalisation of the price which is basically pulling the stocks back from beaten down levels.

Anuj: What about public sector undertaking (PSU) banks. Clearly the low hanging fruit might already be plucked. We have seen big rally in names like State Bank of India (SBI), Bank of Baroda (BoB), Punjab National Bank (PNB). But are these stocks good for more considering that valuations are still good?

A: Any macro recovery in India typically tends to benefit PSU banks and obviously you have got huge financial leverage there because the balance sheet is debt to equity of 15:1. So, if we are to believe that there is a recovery in India which sounds quite possible then the beneficiaries will have to be PSU banks. The overhang there is more about how the entire space is kind of treated by the government in terms of if they want to consolidate that space, how do they go about it. But apart from that there will always be place out there where the price to book is beaten down to extremely low levels and if we are able to, as an economy, show some rebound in credit growth, some rebound in asset recovery then obviously these stocks will do well.

Sonia: I noticed in one of your funds your newest addition in your Pru Value Discovery Fund is Sun Pharma. Very interesting, because a lot of these pharma stocks like Dr. Reddy's, Sun Pharma have now recovered from their lows. You think the worst of the Food and Drug Administration (FDA) issues are behind us and how can you be so sure. This space is full of land mines and gold mines?

A: It is. Again, I don't want to comment on specific stocks but the space as such as you said - I mean obviously on a 3-5 year basis this space has done well but over the last six months to one year we saw fairly steep correction in these names. What we think is from a slightly top down basis it is the kind of industry which plays to India's strength. Signs talent, big domestic market, quality of managements is quite strong. It is not very capital intensive. So, it is an industry which kind of plays to India's strength and obviously it is one of the drivers of our exports story which needs to be there. So, basically on a stock specific basis wherever we are seeing value obviously we increase some exposure.

Also what we have to be cognisant about in this space is that lot of them have exposure to EM currencies and if the commodities prices have stabilised, if world growth has stabilised then it is quite likely that some of these commodity currencies would do well in which case again the space would be one of the beneficiaries.

Anuj: What about the domestic fund flow situation. We have seen a lot of inflows. Of course you would have also seen some of that play out in your funds. Do you see more inflows over next one year or so because equities looks like the only asset class right now which is doing quite well? Gold has picked up but equities have been doing well.

A: If you look at the published numbers themselves from a peak of let us say about Rs 8,000-9,000 net we are about Rs 4,000-5,000 kind of number right now. Essentially what we think is as you kind of indicated from a domestic investor perspective on a two-three year basis equities will remain the best asset class because in a time of high real interest rate physical assets don't really perform all that well and real estate specifically being such a big part of the net worth of Indian households if that doesn't perform I guess there is fair amount of money to come out from that asset class into equities. So, we are quite bullish on this entire space as well.

Sonia: Less than two weeks from now we will get the IT earnings for the quarter. What is the expectation and for this quarter what are the spaces that you will be most bullish on?

A: It is a bit arithmetical that in FY17 we should get 15-20 percent kind of growth for the Nifty per se because lot of stocks had one off last year. So, there is a fair amount of traction in earnings coming from that itself. The things to watch out for in this quarterly earnings specially would be, let us say for IT, what kind of impact this Brexit kind of thing, what is the commentary, the commentary will be more important than the reported numbers in a lot of sectors. So, whether it is IT, capital goods, cement, people will want to know whether the demand is back genuinely, are the companies feeling confident of the demand and are they confident enough to talk about increasing capital expenditure.
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First Published on Jul 4, 2016 10:34 am
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