Indian equities are not overvalued at this point and the Nifty could touch 9000 by March, feels Vibhav Kapoor, group Chief Investment Officer, IL&FS.
In an interview with CNBC-TV18’s Latha Venkatesh and Sonia Shenoy, Kapoor says global equities in general are in a sweet spot, and even if the Fed were to hike rates, liquidity flows to emerging market would not impacted in a big way.
Kapoor feels some capital goods shares are expensive at current levels, but he is bullish on Larsen and Toubro if the economy can sustain the pace of recovery seen in the first quarter.
Similarly, he says he will turn positive on banks and NBFCs if the economy continues to be on the mend.
Kapoor says concerns over high interest rates is a cause of worry for the market, but does not see the RBI cutting rates near term.
Below is the transcript of Vibhav Kapoor’s interview with CNBC-TV18’s Latha Venkatesh and Sonia Shenoy.
Latha: We saw a bit of dithering yesterday by the markets but today back again a fairly robust set of stocks and a robust manner of rise – the advanced declines is two stocks in the green for one stock in the red. Do you think this market is still showing no signs of correction at all, 8,200 quite easy in the September series?
A: Yes, the market is in a pretty good momentum phase right now and therefore you don’t really know when that awaited correction will come. It is difficult to time that.
Having said that today’s advanced decline ratio is good but the actual fact over the past few weeks actually has been that the broader market has not moved in line with the index at all. After that first phase of rise in almost all stocks which happened in April, May, June, the larger market has lagged far behind the index. That is something which is a little bit of concern at the back of one’s mind. Although given the rosy predictions and the fact that the economy is recovering at some stage maybe the broader market will catch up.
But there are certain issues there, for example high interest rates are still continuing. So there is a little bit of dichotomy in the index in the broader market.
Latha: When will the markets begin to worry about a valuation concern? Although we get carried away by numbers like 5.7 percent Gross Domestic Product (GDP) if you look at the actual industrial output, the index is exactly where it was about 30 months ago in 2012. Is the market running ahead and will the valuations sometime come to haunt?
A: Again you need to divide the market into index and non index, and maybe even sectorial wise there are differences. If you look at the index, I don’t think it is really overvalued too much at this point of time because the market consensus is for about Rs 580 to 600 Earnings per Share (EPS) on the Nifty for FY16. So if you take 15 P/E you could be even at 9,000 levels by March 2015, 12 months forward.
So that is not a very expensive valuation provided the economy continues to do reasonably well but on individual stock basis at times and particularly in certain sectors like capital goods there has been a very fast run and the market would have run ahead of the fundamental. So a lot is going to depend on how these hopes really pan out for the economy to improve. And as you said 5.7 percent for last quarter but that might be difficult to sustain going forward.
Sonia: We just heard from L&T on how order wins are picking up and especially in sectors like power which were so slow up until now. Would you continue to back some of these names like L&T despite the 50 percent run-up that we have seen already this year?
A: Yes, generally as everybody we are also bullish on the economy going forward. Hopeful that reforms will happen and things will begin to move on the ground much faster and if that happens then obviously stocks like L&T become good buy and holds. Maybe they are ahead of themselves for a short while but then fundamentals catch up and that is how the way the market goes and for a medium term investor there is still a lot of money to be made.
So the issue really is all these hopes which almost everybody is carrying, and I can’t see a single analyst who is negative or a single fund manager who is negative on the market, and there is no reason to be also but these hopes have to actually turn themselves into reality at some point of time.
So the market will probably continue to hope till maybe the fourth quarter of this year and if then it finds that things are not turning out the way it expected then you might see some disappointment happening.
Catch the entire interview on video