The recent market correction was a shallow one and with global woes easing, it seems that Indian equities have resumed their uptrend, UR Bhat, MD of Dalton Capital Advisors said.
In an interview to CNBC-TV18, he said back home, India Inc’s Q1 earnings have not disappointed, WPI inflation has improved, imports are also doing well, given all these factors one can say that things are turning for the better.
However, for the Nifty to breach the crucial 7,850 level, more positive news in terms of policy action and FII inflows is required, he added. “For the next six months, I think 7,850 on the topside and the bottom near 7,500 is where it should be. But with a positive bias that 7,850 can be breached pretty soon,” he said.
On specific sectors, Bhat is bullish on private banks, IT and pharmaceuticals. He recommended market participants to have some exposure to cyclicals like infra, engineering and autos despite their weak Q1 earnings performance. Bhat is avoiding public sector lenders.
Also Read: Mutual funds’ exposure to IT stocks at 5-month high in July
Below is the verbatim transcript of UR Bhat’s interview with CNBC-TV18’s Latha Venkatesh and Sonia Shenoy. For the complete interview watch the accompanying videos.
Sonia: After two weeks of a downtick, are you getting a sense that the correction that we saw was merely a shallow one and we have resumed our uptrend?
A: Looks like that. Basically we have seen some foreign institutional investors (FII) interest at least the second half of the week, also the fact that even the global factors that were influencing the market for sometime now, seem to be sort of settling down. For example, Gaza there is a truce, the Islamic State in Iraq and Syria (ISIS) issue continues to be bothersome but we have at least Gaza there is truce plus even Ukraine, Putin made a statement that there will not be any bloodshed and all that so even that seems to be getting sorted out.
Also, the US numbers are not bad at all. At least the GDP numbers — the 4 percent GDP number last quarter is fantastic. Outlook for FII flows are not bad plus domestically we have well passed the quarterly results. We are less than 50 points away from the previous peak. There is some incremental positive news even on the inflation front; the wholesale price index (WPI) except for food, everything else seems to be under control. We have auto numbers which seem to be doing fine, imports are doing well that means that there is a lot of economic activity happening. Things seem to be taking a turn for the better.
Latha: Will the market be able to make this dash beyond 7,850 or for that will we have to wait for more clear signs of growth?
A: I think more clear signs of growth are required. 7,850-7,840 or whatever it was is probably within sight. But for it to make a remarkable push beyond that, some more newsflow needs to be there. At least something on the policy front will be required. Therefore, there might be something that can enthuse the market. Finally it is FII flows that count. If we get couple of thousand crore or at least thousand crore a day for the next few days, then 7,840 can be breached.
Latha: What will you pick? We have just passed an earning season, what will be the areas that you would pick as leaders for the next couple of quarters?
A: Private sector banks continue to be the favourite, plus you have IT, it seems to be doing well because rupee also has stabilised at slightly depreciated level. That should be good for IT. These two seem to be the ones, which seem to give reasonably good account of themselves during the result season. The delta has to come from cyclicals. So, one needs to be there even though results are not that good. Segments like infrastructure, engineering, autos – these are the ones that one needs to concentrate on. Pharmaceutical has done very well. That is another sector where one needs to be invested. Public sector banks are not the flavour of the season. There maybe at least a couple of quarters you have to wait it out and for capital goods may be a bit too early.
Sonia: For the next six months if you had to lay out a range for this market, what would the floor and the ceiling look like?
A: As of now, I think 7,850 on the topside and the bottom near 7,500 is where it should be. But I think with a positive bias that 7,850 can be breached pretty soon.