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See Sensex around 16K by Dec-end: Kotak Sec
Published on Wed, Jul 23, 2008 at 18:56 , Updated at Thu, Jul 24, 2008 at 11:21
Source : CNBC-TV18
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A stable political environment will be good for the market, he said. On reforms, Prasad said he is not very sanguine about reforms. "Some measures are likely. The government does not have enough time to push for more reforms." He feels India's Balance of Payment position will be comfortable if oil remains at USD 120 per barrel. "The bigger challenge is at fiscal level. The government has to raise prices." The monsoons, he said, is a matter of concern. "It is becoming more of an issue in South India."
Excerpts from CNBC-TV18’s exclusive interview with Sanjeev Prasad: Q: What’s the best way to approach what’s happened in these past six days? Is it looking like it’s a big bounce in the bear market or do you think things have genuinely turned around even in the medium-term? A: I don’t know if it’s still a bear market or a jump in the bear market. Ten days back, the market was at 13,000 and was looking quite attractive. On July 1, we had put out a buy call on the market when it was about 13,500 or about 13 times March 2009 earnings. So, it really makes sense to buy. From today’s level, we are at about 15,000 on the BSE, which makes it about 15 times March 2009 earnings and about one-and-a-half times the value of the assets. So, one doesn’t have that comfort of valuations which you had around ten days back. Investors could see a 3-4% of upside from here, maybe up to 16,000. It all depends on what happens to crude prices. If it falls, it is positive news for the market. Beyond 16,000, you don’t have valuation coming and then we will have to wait and see what happens to earnings before taking a further call on the market. Q: Has all the good news from the political side been adequately factored in, or do you think this could actually have some long-term repercussions for the market strength? A: It is a combination of two-things. If one has a stable political environment, it is always good for the markets. Also, crude also came off significantly which is a bigger development from an economic and fiscal standpoint. I am not very sanguine about further policy reform etc. Some more pending legislation from the banking, financial, and insurance sector could probably go ahead. In insurance, one could see foreign ownership limit being raised up to 49% from the current 26%. So, that could be a positive. Other than that, one could see some divestments in some cases where things have reached a fairly advanced stage. Now, those could go ahead. Beyond that, I am not too sure whether one is going to see a lot of reforms as far as the more critical areas like labour, pension, or FDI etc is concerned. That would be upon the next government to implement all the tougher reforms. So, the government can handle some of the softer issues, but beyond that it will be extremely difficult because one doesn’t have time. In about 6-9 months one has a lot of state elections. The important ones are likely by December. You still have a pretty varied composition of Parliament. No one wants the government to go to Parliament every time for some show of strength. So, it is positive that we have a stable government. One will see some reforms, but beyond that we should not expect too much.
Q: By how much do you think a slip in crude prices might aid a pullback in our market, because some believe that beyond a point, even if crude stays at these levels, we are still going to be struggling over the longer-term? A: If you look at USD 120-130 per barrel levels, the Balance of Payments situation is reasonably comfortable. At USD 120 per barrel, we are looking at something around USD 130 billion of trade deficit. If you add about USD 95 billion of invisibles to that, we are left with somewhere around USD 30 billion of negative current account. If we put this in the context of capital account flows, which could be anywhere in the order of about USD 50 billion per annum, we still have a reasonable large surplus as far as the BoP is concerned. So, we should be okay from a BoP standpoint. The bigger challenge is the fiscal deficit. To control that, the government has to increase prices at some point. Maybe it is not going to happen in the next six-nine months, but post election one is going to see a pretty big price increase, because of very high food prices internationally and very low domestic prices. So, there will always be some sort of imbalance in fiscal. If you look at the current year numbers, at USD 120 per barrel, one is looking at issue of oil bonds of about Rs 1-1.35 trillion, which is more or less equal to the projected fiscal deficit of the current year. That is a very large number. We need to resolve that as soon as possible in terms of a price increase, which is the ultimate solution. Q: How are you watching developments and news coming out on the monsoon front and its progress? Do you think that is going to be a problem by the time we total up the performance this time around? A: It is becoming a bit of an issue. The challenge is more in terms of the Southern part of the country, especially Maharashtra. The north is reasonable okay. Parts of northern India are receiving normal to excess rainfall. Let’s see how the situation pans out for a few more days. Then, we will take a call on whether some of the positive expectations, which were there in terms of good kharif crop, would lead to a decline in food prices. That expectation may be belied. But I hope monsoons come back in areas where we haven’t seen too much rain, especially in the southern part of the country.
Q: How have you read what’s happening on earnings until now? A: Most numbers seem to be okay. In some cases, industries seem to be delivering positive surprises. Banks are okay except for HDFC, which was moderately below expectations. The bigger numbers are yet to come. Starting tomorrow, you have telecom major Reliance Communications start reporting. The markets were pretty fearful of earnings, which would ultimately result in whatever number people are expecting over time. For the full year, we are still looking at about 14% ex-energy basis. We were looking at about 18.5%, but now we have scaled it down to about 14% for the market, ex-energy basis. Q: What kind of a year-end target are you still working with? A: Based on FY09 numbers, our midpoint is about 16,000, which is not large. |
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