The Nifty could be rangebound between 7400-7800 near-term, and climb to 8000 by December, feels Tirthankar Patnaik, India strategist and chief economist at Religare Capital Markets.
In an interview with CNBC-TV18’s Latha Venkatesh and Sonia Shenoy, he says most retail investors have missed out on the rally, and are likely to enter around 7400 on the Nifty.
Patnaik feels a further reduction in monetary stimulus in the US will trigger a knee jerk reaction in emerging markets. He sees inflation receding over the next three to four months, and does not see a rate hike this year.
He is cautious on financial services in general because of asset quality concerns, but bullish on select private banks like Yes Bank , which is his top pick in the sector. He does not see a merger between HDFC and HDFC Bank any time soon.
He is advising clients to play the economic recovery through sectors like cement. UltraTech is his top pick in the cement sector. He is overweight on the pharma sector and likes stocks like Sun Pharma and Lupin .
Other stocks he is bullish on include Britannia , Emami , Bata India , Gulf Oil Lubricants , Sonata , Cummins India , and Crompton .
Below is the transcript of Tirthankar Patnaik’s interview to CNBC-TV18’s Latha Venkatesh and Sonia Shenoy:
Latha: The market has been baulking at crossing that 7800 mark, some of the results have been deeply disappointing, the IIP just threw us of our optimism. What is the sense, you would still be confident and remain a buyer on dips?
A: I will remain a buyer on dips simply because the macro has probably bottomed out, we will not see things going worst from now. We will see things improving. Of course it is an extended recovery and we are all the well better for that because this extended recovery is the only way we will be able to get the other important point which is lowering inflation. If we are able to reach 6 percent by January 2015 that is governor Rajan’s target then necessarily growth will have to be weak, growth will have to be disappointing, earnings growth will have to be sub 20 percent, revenue growth will have to be just about 10 percent or so.
So that is the scenario we will expect regardless of what the government does right now and of course we will expect the government to maintain fiscal discipline in all this. So I will still be a buyer on dips. Of course the market will meander as it has been doing for sometime right now.
Latha: What is the low for this market, is that at least fixed at about 7,400 or all those worries that you are talking about like more disinflation will have to happen, do you think that will give people opportunity to buy at around 7,000?
A: There will be a lot of people across segments, in the domestic institutional segment, in the retail segment that have not really participated in this rally. Despite the drop that we have seen post elections, despite the flat out patch that we have seen post elections, the markets are still up about 20 percent and not too many people have participated. Therefore the understanding is that while the markets might consolidate, they will probably preclude a scenario of a sharp dip barring something major risk-off happening globally.
In terms of the levels, 7,400 is what we are also looking at that should be seen as a crucial level at which we will see buying coming in either from the retail segment or the domestic institutional side, high networth individuals (HNIs) side. So our near-term understanding on the market is about rangebounded behaviour between 7,400 and 7,800.
Sonia: The last time when you spoke with us, you had indicated that you expect to see the Nifty at 8,000 by December, is that still your Nifty target or have you changed it a bit?
A: I very much remember that, so basically 8,000 by December is something we will hang on to. The point is we will see another three-four months of inflation going down. The point is that we will probably see not too much of a dip globally. My base case is that when the wall of money finally disappears, when the Fed starts taking some decision on when to tighten, at that point we should not see a big destabilising moment globally. That is our base case. In that scenario, capital flows to emerging markets will basically continue and on that trajectory the earnings growth number for India for this year is about 15-16 percent. There is very low probability of disappointing on that front, maybe we will not see higher number but we should not see disappointment. So 8,000 in that sense is doable/achievable.