With Indian market breaching all-time highs almost every other day, experts are going gung-ho over the market and the economy thereby increasing their targets frequently. The Sensex is currently trading around 28,000 and the Nifty above 8300.
Gautam Chhaochharia, head – Research, UBS Securities remains bullish on the market with Nifty target of 9,600 by 2015-end.
However, Chhaochharia said the growth recovery is still some time away and will increase mildly and gradually despite country’s consumer price inflation for October cooling off to 5.52 percent and increase in industrial activity for September to 2.5 percent.
He expects a gross domestic growth of 5.5 percent and 5.8 percent for FY15 and FY16, respectively.
Speaking to CNBC-TV18, Chhaochharia said that the two-wheeler space is surprising positively. Maruti remains his top pick in auto space though he recommends avoiding two-wheeler companies.
Among specific sectors and stocks, Chhaochharia sees significant upside in MCX , Bajaj Electricals and Exide Industries . He also likes ITC in consumer staple space.
As economy is recovering and government is taking some big initiatives, he is bullish on ICICI Bank , Axis Bank , ONGC , Asian Paints and Maruti Suzuki . According to him, these five stocks will drive Nifty rally over the next few days.
He also likes non-banking financial companies with LIC Housing Finance and Shriram Transport being his top picks.
Below is verbatim transcript of the interview:
Q: What is the overall sense in the market? In a few days you will also have your investment conference, you must have already touched base with a bunch of potential guests, both the listeners and speakers, are you guessing that this party is not going to stop anytime now, India seems a preferred destination?
A: We would like to believe that. We still remain bullish on the market with a Nifty target of 9,600 for next year. But talking to investors over the last few days, we are definitely seeing a sharp uptick in the investor interest in the conference event compared to last year.
Secondly, we are also seeing a lot of new investors who are willing to come down to look at the India opportunity which is definitely reassuring.
Q: Give us a word on the macro numbers that came yesterday. The inflation number down, index of industrial production (IIP) looked optically higher but what do you make of growth number, do you think growth is taking much longer to improve?
A: We would agree. We have been arguing that that is where the room for disappointment for market is that some of the exuberant expectations are slightly ahead of reality.
We continue to believe that the growth recovery will be mild and gradual. In fact, our GDP growth forecast is 5.5 percent for March 2015 and 5.8 percent for March 2016 and only 6.5 percent for FY17. We expect a mild and gradual recovery. For us it was not a surprise but pockets of the market would see this with some concern.
Q: Have you turned neutral on smallcap and midcap space from overweight? Which midcaps have you now turned increasingly cautious of and are there any midcaps that have popped up on your radar and you are now recommending a buy?
A: We have been getting concerned on midcaps top-down for the last two-three months because of very expensive valuations and we have been on kind of a downgrading spree.
We have downgraded TTK Prestige , Havells , Kajaria Ceramics , a lot of stocks which still have great opportunities from three-five year perspective. Investors looking at that time horizon should look at it differently but from the next one year perspective, from current valuations, street estimates and our estimates, we see limited upside.
The stocks where we continue to see significant upside from a one year perspective in midcaps, and these are our top picks, remains MCX India. Bajaj Electricals, where we see restructuring related re-rating opportunity and Exide Industries.
Q: What about the other auto ancillaries? We saw Motherson Sumi in line, some were squabbling with the numbers, Bharat Forge was eye-popping good, what about the entire auto ancillary space?
A: We don’t have a formal view on auto ancillary as such because each company is very different but Motherson is also one of the midcaps that we downgraded three months back on valuation. So again from a near-term perspective, the upside seems limited to us in that name.
Edited by: Anjali Agarwal