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Maintain Sensex target of 46,000 by March 2017: AlfAccurate

Earnings will show some signs of recovery from the second quarter itself and one can see more accelerated growth from the second half of the fiscal, said Rajesh Kothari, Managing Director of AlfAccurate Advisors.

Alfaccurate Advisors remains positive on the Indian market with a 2-3 year view and maintains Sensex target of 46,000 by March 2017.

In an interview to CNBC-TV18, Kothari said the market does not want policy announcements anymore but has been looking for on-ground execution.

The brokerage firm is positive on sectors like auto and ancillary, private banks, select NBFCs and consumer durables.

Below is the transcript of Rajesh Kothari’s interview with CNBC-TV18’s Menaka Doshi and Senthil Chengalvarayan.

Menaka: We have got a variety of things to look forward to in terms of where these markets are headed. The first event will be what Janet Yellen says this evening. Do you think it is going to have a big impact if she takes the word patience out of her commentary, a big impact on emerging market inflows specifically to India?

A: I don’t think so. I think there is over analysis of each and every word of what US Fed is going to talk about. One thing we need to keep in mind is that while on one hand there can be a possibility of tightening whether it is question of June or September of 25 bps or little higher over a period of 3-4 quarters the Europe is still surplus. Quantitative easing by Europe, quantitative easing by Japan, China is also now going to be easy monetary policy. So, there are lot of offsetting factors. Number two, it cannot be that each good news is a bad news. Actually it is a good news because US economy is doing well. So, now market is treating each bad news as a good news and good news as bad news however we need to come back and focus on fundamentals and that is where the US economy is doing reasonably better compared to what people thought two years back. So, whether it is June, whether it is P capital of patience or P small, I think we are over emphasizing and over doing research on all these words.

Menaka: You don’t even expect any sort of volatility in the interim?

A: Volatility may happen but it is going to be very sharp volatility and it can be either way volatility. Volatility means it can be both ways. Suppose the stand is little bit soft then people will again talk about the same things again that now it is going to be postponed by another one quarter, it is more of speculation in nature. However India specific if you look at the currency movement that basically gives you the kind of a flavour of each country whether investor likes it or not and that is why the Indian currency has remained extremely stable compared to many other emerging market economies. Therefore I believe that even if suppose there is a little bit tightening which suppose today night there is an announcement , the currency stability shows that India is going to be overall better positioned compared to many other economies.

Menaka: If that is not the next big trigger for the Indian markets, what is? Do you expect it will be Q4 earnings that will change expectations from these markets either to the upside or the downside because the last quarter was very disappointing or do you expect now more policy announcements from the government to be the next big driver?

A: The next big driver needs to be the on road execution. It has to be now execution driven growth by the government, by the corporates. We do not need now announcements. Policy framework has been already – last 9 months has been spent on the policy framework. Now we need on ground execution.

Senthil: Year to date, that is April 2014 till today you have returned about almost 72 percent. Do you expect in the next 6-8 months to be as easy if I can put it that way?

A: Markets are never easy.

Senthl: Can you get these kind of returns because a lot of these returns are factoring in hope and expectation of policy. Do you see on ground taking off to give you if not these return but any where close to this?

A: Last year Sensex delivered 30 percent return – FY15, from April 1 to March 31 – we are near to that. We are 72 percent up compared to market which is 30 percent . We believe that next 2-3 years is going to be back to the golden period of growth of FY03 to FY08.

In FY03 to FY08 Sensex went up by 5 times, all indices. You look at any BSE indices whether it is capital goods index, PSU bank index, any index the minimum it was up was 3.8 times which was the IT index and maximum was capital goods which was 15 times in 5 years. So, what I am trying to say is that if we are going back to that kind of a golden period in terms of GDP growth which is 7 percent plus, IIP growth which is reasonably healthy growth then we can think that corporate earning growth can be 18-20 percent plus.

Menaka: Do you really think we are headed to growth of those levels again, wasn’t that a very unusual period in the history of the global economy. I know you are saying liquidity flows, monetary policy easing continues if not by the Fed by other banks but will they replace the kind of flows that he Fed had pumped into the economy over the last few years. I am not sure whether we will ever get back to FY03-FY08 levels.

A: In FY03 to FY08 corporate earnings growth was 25 percent CAGR and market delivered 35 percent plus CAGR. So, market cap growth exceeded the net profit growth by quite a distant margin. Right now let us be conservative, let us assume 20-25 percent earnings CAGR which is possible and let us assume that market cap growth mirrors the earnings growth, so 20-25 percent is the Sensex what we are talking about over next 3-4 years but it is definitely possible. On top of it please keep in mind that while the liquidity from the Fed perspective may not be the same but the US economy is back on growth. It is going to be the biggest engine for the entire world economy.

The quantitative easing by Japan and Europe is still continuing in a very big way. So, these two economies there was not QE in FY03-FY08 and Japan is big, it is a big driver. So, the entire liquidity perspective I am not too much worried. If we have right fundamentals then liquidity will always follow the fundamentals in my view. With new Modi government there is a lot of hope and we believe that there is going to be on ground execution which will improve may be after 3-5 months and as you see improvement in that then definitely the earnings growth can be higher.

Senthil: FY03-FY08 you pointed out that the capital goods index was by far the outperformer. What do you see leading if you assume all of this happens and we have this golden period again, what will lead it?

A: Capital goods has to come back because the investments will be more. In fact if you look at the Budget while there is lot of criticism of the Budget the good thing is that the government is focusing on investment led growth and not the consumption led growth. So, consumption on its own can lead to growth but government perspective is focused on investment. So, if there is more investment and you are seeing on the coal policy side what is happening then that is going to lead to improvement on the stalled projects. So, as there is more investment then definitely the capital goods indices need to do better compared to the overall market cap.


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