In an interview to CNBC-TV18, Chhaochharia said he sees a 15-16 percent earnings growth in the medium term (over the next 2 years).
In its India Strategy note, UBS maintains a bullish view on Indian markets, though sees a possibility of near-term consolidation. It said that lower risk-free rates may support overall higher market valuations, but growth outlook remains critical for re-rating.
Chhaochharia said that he is confident of inflation coming down to 6 percent and expects RBI to keep monetary environment reasonable. He sees the central bank keeping policy rates on hold till late FY15.
UBS will continue to be buyers in cyclicals and like financials and PSU oil companies, he said. “Like HDFC Bank and Axis Bank from the banking space, Shriram Transport , Cholamandalam Finance and LIC Housing Finance from NBFCs.”
From the oil and gas space, UBS likes ONGC and Reliance Industries .
On the recent Supreme Court verdict, terming all coal block allocations since 1993 as illegal, Chhaochharia said the government’s reaction to apex court’s order will be watched. Hoe however does not see wholesale deallocation of coal blocks.
Below is the transcript of Gautam Chhaochharia’s interview with Latha Venkatesh and Sonia Shenoy on CNBC-TV18.
Latha: You called 8,000 sometime back, didn’t you? When did you?
A: Earlier in the year but it is already reaching there. I had December 2014 target.
Latha: What is the sense? Do you think now by the end of the year we could do much better than 8,000 or what is your fresh 12-months target or March 31 target?
A: We don’t have a formal next year’s target yet but we have been writing that even 8,000 target market always has potential to overshoot. So it could overshoot surely. Slightly thinking medium-term, still looking at we were fair comfortable with the view of 16-17 percent earnings growth for the next two years. Despite our base case, we have a milder growth recovery versus what the street is looking at. So 15 percent growth rate should be supportive of markets delivering that kind of returns anyway.
Sonia: I was reading your latest report this morning where you argue that the Reserve Bank of India (RBI) could keep the policy rates on hold till late FY15, what is that argument predicated on?
A: We have been big believers in inflation coming down because we don’t believe inflation in India including food inflation is structural. So all the arguments behind that we are not convinced because all the arguments supporting that held true even before five years back. So we have been believers of that. We have been fairly confident of 6 percent consumer price index (CPI) January 2016 target of RBI. But having said that, while bond markets and markets will react in anticipation of inflation coming down, RBI would like to still keep the monetary environment reasonable and policy cycle will lag inflation moderation because they want positive real rates to revise financial savings as well as to kill entrenched inflation expectations.