Speaking on the Goods and Services Tax (GST), Kumar says the Bill not going through in the Parliament will be the source of immense disappointment.
On Nifty, Kumar says given the poor Q1, Q2 numbers, the market could fall to levels of 7500 if the December (Q3) quarter numbers too fail to improve.
However, Kumar expects growth to return to the market in the latter part of 2016 and hopes to see higher levels of 9500 on better earnings, led by largecaps.
Below is the verbatim transcript of Ratnesh Kumar’s interview with Latha Venkatesh and Sonia Shenoy on CNBC-TV18.
Sonia: It has been a rangebound days for our markets around 7,800 level, we have a couple of big triggers lined up, the winter session of the parliament, the Reserve Bank of India (RBI) and the Fed policies, which do you think is the most important trigger for an investor to watch?
A: From our perspective, what happens in the parliament and the winter session will be probably far more important than the Fed rate hike. It happens sometime over the next one-two months I guess and the market is also looking at probably that being the only rate hike before the presidential elections. So from our markets point of view, it is what sort of legislation gets done in the parliament because what we are grappling with in our market is now beyond the macro story.
What is the translation of hope in terms of actual performance and one of the performance parameters, which the market will be looking at is what sort of reform measures go through and to that extent, what sort of expectations and hopes that can be built up.
Latha: So the winter session — if the goods and services tax (GST) amendment bill doesn’t go through — would be game-changingly bad, if it goes through would it be game-changingly good?
A: Game changingly neither way but definitely if it does not go through, it will be a source of disappointment especially amongst long-term investors.
Latha: Does 7,500 gets taken?
A: That would anyway be at risk because if earnings don’t improve immediately in the short-term, in the next two-three months. If the December quarter earnings don’t come as good as what is being expected because — now remember that first two quarters earnings have come in worse than expected. So there is a whole lot of burden which is there now on the December quarter as well as in the March quarter.
Clearly, the expectations have been coming down but do they need to come down more? That is what the immediate earnings season will determine. So if you don’t have goods and services tax (GST) getting passed or other reforms getting through then some dent in confidence will be there positively but there is also an expectation that it is a reform, which has got a fairly broad-based support so once the politics of it is out of it then probably it will go through. So it not going to through will be probably more of a disappointment factor.
Sonia: Let us talk about some sectors and stocks now. One of the sectors of the month has been the auto space. One because of the way the Seventh Pay Commission will put more money in the hands of government employees for spending and two because genuinely this festive season has been good for many of the auto companies. Is there still more potential in names like Mahindra and Mahindra (M&M), Maruti , Bajaj , Hero ?
A: I think auto in general is coming off low base in terms of demand. So whatever that positive triggers, which are there on demand will help auto. The more riskier play is more on the economy sensitive side in terms of commercial vehicles, those are more linked to the economic recovery cycle whereas the consumption side of auto is more steady, it is better placed and I think that will continue to do steady.
If I look at the market right now, we are not looking at massive homerun kind of plays. What I am looking to play is that yes, near-term newsflow on earnings fundamentals are going to be weak in the next two-three months. So what are the sectors and what are the areas that I can play, which within that context have better growth or better potential for returns.
So auto will be one of them, IT services will be another one of them and banks also to some extent will be there because of being core segment of the market.