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Still a ‘buyers market’; like autos, cement, pharma: Pros

With the risk-on rally continuing for emerging markets, India so far has rallied almost 10 percent and remains a buyers market at least for the long-term investors says market veteran, Jyotivardhan Jaipuria. He is convinced that the market will be supported by earnings growth potential in the coming few years and that equities will still remain the best asset class over the next few years.

Jai Bala of 1857 Advisors too is of the belief that the correction that started from February was just a correction within a long-term uptrend. According to him till the Nifty remains above 8056 the uptrend will continue.

However, for the near-term Jaipuria thinks the market is likely to consolidate in the next few weeks before the year-end rally plays out.

According to Jaipuria, now with the risk reward turning favourable sectors like autos, cement, industrials and banks will do well going forward, unlike the last few years when the exporters performed well.

Jaipuria is bullish on Bajaj Auto from the auto space, and from the cement space he prefers midcaps like JK Lakshmi Cement, Mangalam Cement. He is bearish on metals and telecom.

Jai Bala is not so upbeat on the IT space barring Infosys, which he expects to do well and go close to Rs 1300-1350 levels. “IT stocks are going to chop around between the February highs and September low barring Infosys,” adds Bala.

Reliance Industries too is likely to continue with the uptrend for the next couple of weeks but it is yet too early to take positions, says Bala.

When asked what is the bigger risk for the market domestic news like Bihar elections or international news like Fed hike, Jaipuria believes Fed news or any other global  news could be a bigger risk for Indian market because the rally so far was led by positive international cues. However, according to consensus belief the Fed rate hike is likely only next year.

Impact of Bihar election outcome on the market could only be for the near-term and not long-term, believes Jaipuria.

Stock specific, Bala is bullish on Hindustan Unilever, Bosch, Bajaj Corp and some of the frontline pharma names.

On the currency front, Bala is bullish on the dollar and dollar index and says the rupee is likely to weaken to 68-68.5 to the dollar.

Below is the verbatim transcript of Jai Bala and Jyotivardhan Jaipuria’s interview with Sonia Shenoy & Anuj Singhal on CNBC-TV18.

Sonia: The market has resumed its uptrend in the last couple of trading sessions and now we are back at the 8,300 level. For a long-term investor how favourable is the risk reward ratio currently?

Jaipuria: My view is that the next few years are going to be good for a long-term investor in terms of pure earnings. Market is not cheap, in fact slightly expensive but the earnings momentum would be quite strong over the next few years and that is where most of the returns would be made because you probably have earnings which will compound at 15 percent per annum over the next few years.

So, it is still a market you want to buy. Probably if you get some dips, it helps you to buy at a lower level but it is a market you want to buy and hold because equities probably will still be the best asset class over the next few years.

Anuj: Is the correction well and truly over and do you think the market is now headed higher from here on?

Bala: The market is doing lot of positive things and like we had said when the market was recovering from the lows of 7,600 and below, we said that the market is likely to rally closed to 8,300. It has done that and the next step to this is that we don’t want to see pullbacks that go deeper than 8,056 on the Nifty. If it does that, the market structure will reiterate the positives that it is already seeing.

However, we have to do a reassessment only if the market were to go deeper than 8,056 but we don’t want the market to do that. The next step for the market to reiterate that it is going much higher is that we want couple of big up day to come through in the next week. If it does that it will corroborate the fact into the structure that we are interpreting at this point of time and the market is likely to head to record highs which we have been saying is likely to come througg because we have been saying for a long time that the correction that has started from February, is just a correction within the longer term uptrend. So, want the market to see up days in the next week. If there is a pullback, we don’t want it to go below 8,056.

Anuj: The clear tectonic shift in the market has been in terms of fund flows. We have seen foreign institutional investors (FIIs) inflows come back in the market over the last many days now and that has been a global trend for emerging markets. Do you think the liquidity factor alone is going to be enough to take market back near the all time highs?

Jaipuria: If you see part of it has just been global so there was like lot of worries in the market and part of that have got erased. India is up 10 percent from its lows around a month back and most emerging markets have done something similar. Therefore, from now on, we probably will have a bit of breather in the market; a bit of consolidation for the next few weeks before you see the year-end rally play out.

The additional spurt was the European Central Bank (ECB) joined the party saying that they are going to infuse some more quantitative easing (QE) into the economy. So, to that extent you had first the Fed not really raising rates and the signal became that the Fed hike is probably off the table and then you had a QE come up.

Therefore, the onus is now back because the market has gone up already. So now you need to keep getting positive news otherwise my broad sense would be that we are in a consolidation phase. We will probably see a bit of pullback coming in the market and probably flattish to slightly down market near-term.

Sonia: We have seen a lot of leadership resume in this market so names like Infosys , Reliance Industries , ITC , HDFC have all seen good up moves in the recent past. For a long-term investor, since you do believe that the risk reward is favourable, where should you be putting your money now?

Jaipuria: It is very interesting, because some of the names you mentioned were things which were called laggards for the last few years. So, the good thing is that you are starting to see some of the laggards perform well. All these stock went up because the earning was good in them. I think that is what you are going to see over the next three years. My view is that if you take the last five years you should have probably bought technology and pharmaceutical and the private sector banks that is what made you money.

The next few years you probably will see some other sectors also do well. I am bullish on autos, cement. I think industrial names will also do well. Therefore, I still like the banks and the industrials and autos and cements would be the other sectors to do well.

So, these are four sectors which will do well. Essentially it is the domestic economy, the rate sensitive will do well rather than the exporters which did well over the last few years.

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