I will start with the latest BSE circular on tighter surveillance. What is your take on this rule that had terrified the broader market?
Well, it was just a little bit of miscommunication that added to the volatility. The midcaps have maybe had the best one-and-a-half years. And after having a wonderful July, they were due for profit booking. A short sell-off in the midcaps was anyway due, and we have seen money again rotate back into the largecaps. So this was nothing new, it was part of the market cycle. I think we are done and dusted with this issue now.
So you do not see any more sell-offs in the broader market due to this?
The broader market had corrected very sharply last week. It cannot just fall like the heavens fell on it. So it was just shorts, maybe a much overdue correction. And you get a chance to filter the men from the boys. I think next week onwards, the midcaps will again be charged up to lead the rally because the breadth of the market has to be positive if you have to consolidate or go higher.
Where do you see the Nifty by the end of December?
That will be a difficult call. But the way we are going, 17,500 looks very much on the cards.
What kind of Nifty stocks will lead the rally to 17,000 and beyond?
On a broad base, Reliance has again taken the leadership role. We think underdogs like ITC and some of the banks are all looking good. And metals are leading the party, along with IT stocks. So the whole base is looking good. It is not that any sector is not participating. Banks that were underperforming have come back. Metals are again back in favour because of the US infrastructure bill. IT and pharma have been rallying in this market. So we see a broad-based rally, and that will continue. Reliance will be the key now.
After the Q1 results, we have not seen many earning upgrades. What is your outlook for the September quarter earnings, given that the base will be much higher than the one seen in the June quarter?
In the June quarter, the second wave and the lockdown consumed almost 45 days. Largecap banks and other largecap stocks did extremely well because they gained market share. We think 2022 earnings will be spectacular, so we are looking at very, very high double-digit growth. And it will be across the board because of the revenge spending or reopening.
Given that the rally has extended to 16-17 months now, do you think this will become a stockpickers’ market now?
Well, it has always been a stockpickers’ market. Easy money, like you said, may have already been made. But let us not forget that this is not an incident that happens every three years. This happens once in a lifetime. So there will also be inordinate gains.
See, there are three things behind this – a) a ball of liquidity, b) the reopening of trade for an India-centric demographic, and c) the rising Covid Delta cases in the US, which means this easy money or no-tapering remains. I think the broader market is definitely going to take the cake. But it will be more about specific stocks, sectors or industries that do well.
What stocks or sectors will you pick for the next one year?
There are a number of stocks but we are very bullish about infrastructure. (Road Transport Minister Nitin) Gadkari has already indicated that in three years, roads in India will be on a par with those in the US — which means road transportation, infrastructure, EPC (engineering, procurement, and construction) contracts are going to do very well. Real estate is going to go through the roof because the twin assets of gold and stocks are hitting new highs.
If I have to name a few stocks, my dark-horse pick is IRB Infra. It is the largest player in the Golden Quadrilateral. It also operates 14,000 kilometres of roads. It is the largest toll-tax player. With FASTag and the reopening, everyone will now be on the road. There will be a huge upside for that stock. We are also very bullish on
and DLF. We like some of the midcap banks, like Bandhan and RBL, and we think that metals will continue to rule the roost for sometime, so Tata Steel and Hindalco can be outperformers.
Power is in the spotlight now. What is your outlook on that?
Power has been a dream story. After 10 years of underperformance, the likes of NTPC, JSW Energy and the utilities are doing extremely well. When we stayed at home, power consumption may have hit the highest level in five years. The annuity model of some of the power distributors is very positive. Lenders to the sector are in a very good cycle — the likes of PFC and REC have outperformed. So power continues to be one of the best sectors in the infrastructure book, along with infrastructure and roads.
We have seen a flurry of IPOs. Merchant bankers seem to be getting more greedy with some issues being priced at 80 times their earnings. Is it healthy for the markets? Who is the real beneficiary here?
It causes a little bit of concern because there is a flurry of activity and most retail investors could get sucked into it while looking for easy money. However, one thing I have noticed is that the quality of paper has been reasonably good. You will see some of the ugly ducklings make their way into the market. But if you tread with caution and see the peer book comparison, there is money to be made. This is also the first time that IPOs are indicating that the primary and the secondary markets will go hand in hand for some time.
A disclosure, as a broking house we advise a lot of our clients, they could be having positions on some of the portfolios we have clients who have positions on that.
