Even as markets have bounced back a good 15 percent after bottoming out in February, there may still be a further 12 percent upside over the course of this fiscal, says Vibhav Kapoor of IL&FS.
In an interview with CNBC-TV18, Kapoor advised investors to not chase stocks at current prices and said the market would likely take a breather in the near term.
"By March 2017, we expect the Nifty to rise to 8,700-8,900," he said.
Below is the transcript of Vibhav Kapoor’s interview with Sonia Shenoy and Latha Venkatesh on CNBC-TV18.
Sonia: The market run has been fairly strong up until now. Do you see more on the upside and what do you think has been the genesis of this rally?
A: The genesis, as we said earlier, is very clearly one, valuations had become very attractive at lower levels. Second, some signs of improvement happening in the economy and then of course third, international scenario improving from what it was in the beginning of the year when there was so much of nervousness about China and the US and higher interest rates and so forth.
So, there was a confluence of factors which has caused this rally to happen or rather, I would say, the market to go up. We continue to believe that the market is now in a medium-term uptrend and therefore will see higher levels over the next 12 months.
Having said that, the run-up has been pretty fast. Valuations are again no longer all that attractive, at least in the short-term. They are fair. We still have the uncertainty of the monsoon, etc. Hopefully, as per predictions, that will be good. So, while we have a positive view for the next 12 months, in the very short-term probably, the market needs to consolidate or maybe correct a little bit here. So, it is clearly a market to buy on dips, but definitely, at current prices, not to chase.
Latha: We have seen this big run in some of the metal counters, but we just had a discussion on iron ore, the prices have almost doubled over the last four months. Steel continues to surge – USD 250 four months ago, now about USD 480. Should we chase steel stocks?
A: That is another trend which we, over the longer term, believe that commodity prices have reached a low. They are bottoming out. Of course, they have run up a lot in the last few weeks. So, they will correct from here. However, having said that, the bear market in commodities is over and you will see gradual improvement happening over the next 12-24 months.
Of course, one of the reasons for this, in addition to China, etc. and cut down in supply has also been the weakening of the dollar over the past three to four months. The dollar has fallen by about 6-8 percent against most of the currencies. So, that is one risk which I wanted to highlight not only from the metals market point of view or the commodities point of view, but also from the equities point of view.
I believe that somewhere down the line, maybe in the second half of the year, US interest rates will probably go up at a faster speed than what the market is anticipating right now which will again lead to dollar strength and therefore you will have again some volatility in the second half of this year as far as international markets are concerned. So, that is one thing which we need to keep a look out for.
Sonia: What is your year-end Nifty target now?
A: We continue to believe that for March 2017, as I had said earlier, our target is about 8,700-8,900 and that is one reason why I am saying we should not be chasing right now, because if you keep 8,700-8,800, we are just about 10-12 percent away from that at current levels.
So, it is not a very exciting return and therefore some stocks will obviously give you better returns if you do bottoms up pick up. However, as far as index is concerned, I think it would be much more attractive to buy at dips, rather than at current levels.
Latha: I wanted to ask you about banks. They usually are aligned to the commodity cycle as well since they have such a big exposure to steel and metals. Would you cotton in on any of the PSU banks now?
A: I would still wait for Q4 results and we have been maintaining that for quite some time because while things seem to be improving, partly because of commodities having improved and also because of actions being taken by the RBI and the government but we would still like to wait and watch out for what happens in and what are the commentary managements give out when the Q4 results come out.
Incidentally, if you see over the lastsix or seven quarters, whenever the quarterly results or towards the end of the quarterly results season, the markets have always dipped because corporate results have not kept in-line with what the market was expecting. So, that is another risk of a correction happening somewhere in the month of May when the quarterly results come. So, it is better to wait and look at what commentary you get from the PSU banks before taking a view on that.
Sonia: It is still early in the earnings season, but the two largecaps that delivered good numbers this earnings were Infosys and IndusInd Bank . Would you buy either at these levels?
A: I would not comment on individual stocks as you know, so I think private sector banks generally look good, somewhere the valuations are a bit stretched but overall I think they will continue to do well.
As far as IT is concerned, as a general sector I have an underperform rating. You will get some decent returns, but it probably will underperform the market a little bit.