We believe consumption will be back on track after the election result outcome, said Foram Parekh of Indiabulls Venture
Interest rates cuts will aid in increasing the profitability of the companies, which makes us confident that Nifty will touch 13,000 by the end of CY19 and 13,500 by the end of FY20, Foram Parekh, Fundamental Analyst – Equity, Indiabulls Venture said in an interview to Moneycontrol's Sunil Shankar Matkar.
Edited excerpts:
Q: FIIs bought more than Rs 18,000 crore in the last few sessions after the Modi government came in power again. What is your take on flow and will it continue?
A: FII flow will definitely continue from here on. The election result shows that we have a very stable government at the helm for the next five years which is immensely positive. Hence, we believe FIIs will continue to stay net buyers throughout the calendar year.
We have also seen earnings improvement in Q4FY19 with regard to banks, cement, infrastructure and realty. We believe consumption will be back on track after the election result outcome. Supported by possible 50bps rate cut as indicated by the RBI governor, all these factors will continue to attract FII investors.
Q: Do you expect some revival in consumption coming quarters?
A: Consumption slowdown occurred on account of fear of having no stable government at the helm, however, the election outcome has put an end to all those speculations. We do not expect a drought situation this year.
We feel consumption will start to pick pace once the regular monsoon sets in. In the Interim Budget 2019, the government had proposed to increase MSP (minimum selling price) for 22 crops by more than 50 percent. This will spur consumption in the rural area with the new government implementations. Rising MSPs and regular monsoon season along with a continued stable government are important triggers to boost consumptions, which will benefit the FMCG and NBFC sectors.
Q: What are your sectoral bets if the government increased its focus on land and labour problems?
A: Modi government is expected to resolve major land and labour problems now that it could not solve during the previous tenure.
On our 75th independence day, the PM reassured of the land reforms kicking in soon, ensuring that each and every family will have a ‘pakka ghar’. Inventory level of the real estate companies is highly elevated, therefore these land reforms will come as a breather for the real estate companies as well.
Once the real estate market picks up we will witness sector rotation. Sectors like HFCs, building products, paints will also see an uptick. Labour problems when resolved will fetch higher income to the labours, bringing consumption back on track.
Q: Are we still in a bull market phase? Have you made any revision in targets for Sensex and Nifty?
A: We are in a structural bull market phase which will continue for a long time. In the short term, there are jitters from the US-China trade wars and Brexit but the Fed has hinted for one rate hike in a year, taking a dovish stance. This stance of the Fed will boost the US economy having a cascading impact on our Indian economy.
With both the US and China going into elections next year, we feel there will be no decisions taken on trade wars leading to temporary ailments by way of bilateral talks.
With crude slipping from its peak, we feel lower crude will help keep inflation benign, which in turn will help in further slashing interest rates on account of lower inflation. Interest rates cuts will aid in increasing the profitability of the companies, which makes us confident that Nifty will touch 13,000 by the end of CY19 and 13,500 by the end of FY20.
Q: What is your take on Q4 earnings growth, considering slowdown in key segments?
A: Q4 has been better than Q3 with regard to banks, IT, cement, infrastructure, realty, metals and capital goods. Q4 has primarily been disappointing for the FMCG and automobile sector. FMCG and automobiles were impacted chiefly due to consumption slowdown, in turn affecting the volume growth of the companies.
Despite the slowdown, largecaps like HUL and Britannia both reported 7 percent volume growth on a higher base. Post the favourable election outcome and the onset of monsoon, we believe consumption will be back on track improving the volume growth for FMCG companies. The 2-wheeler segment is already seeing an increase in demand while we expect the whole sector to pick up.
PSU banks reported a healthy set of numbers after the recapitalisation leading to an improvement in asset quality. Private and regional banks have also reported a stupendous set of numbers. We believe this trend will continue in FY20 as well.
