Vibhav Kapoor of IL&FS said macro fundamentals are really negative at this point of time. He expects the Sensex to go down to 11,500 to 12,000 levels. "That's preventing any meaning full rally to happen. Technically, one might see some stabilization for sometime and maybe some rangebound movement. Fundamentals and news are so bad that ultimately one is going to
see a downside breadth, maybe immediately or after two weeks."
According to Kapoor, the markets may head higher if there is some really positive fundamental news like oil prices going down in a big way, global situation improving, or some extra ordinary good corporate results in the next few weeks.
Excerpts from CNBC-TV18’s exclusive interview with Vibhav Kapoor:
Q: We spent most of the day trapped in a range. Is that the way forward? Do you see a decisive break in July in either direction?
A: The way the markets behaved today was not at all encouraging. There were quite a few weeks of fall. After that, the market has been trying to stabilize in a range. But the behaviour was all not encouraging.
Every time it tried to go up a little bit, a lot of selling pressure came in. Infosys was down by Rs 300 down the pre-result prices once the results were announced. Although, Axis Bank came out with very good results the stock was down Rs 30 to Rs 40. That is not an encouraging scenario.
The macro fundamentals are negative at this point in time, and that is preventing any meaningfull rally from happening. Technically, there might be some stabilization for some time and there may be some rangebound movement. There could also be some expectation of the confidence vote passing in the Parliament and some reforms happening a little bit after that which could perk up the sentiment for some time.
But the fundamentals are so bad and the news is so bad that ultimately there is going to be a downside breadth either immediately or after two weeks. But we are looking at the index going down to something like the 11,500 to 12,000 levels.
Q: If we do get that rally that you are talking about, depending on how political events shape up, how much would you give it and what could be the extent of that upmove?
A: We are looking at 4,250 or 4,300 or 4,325 on the Nifty. That is probably the maximum the rally can carry unless there is some really positive fundamental news like oil prices going down in a big way or some global situation improving or some extraordinarily good corporate results in the next few weeks. Apart from any of those things happening, 4,300 or 4,325 would probably be the outset of the rally.
Q: What is going on with participation? Once again volumes have started dipping a bit. Do you think people would generally be staying away? Do you sense a lot of HNIs trying to accumulate stocks with 3,850-3,900 as a bottom on the Nifty?
A: Even now, the medium-term investors are still sitting out. We have not seen much participation from them. It is probably the trading community or people who look at slightly shorter-terms and want to take advantage of a 200-300 point rally in the Nifty who are looking at that 3,850-3,900 and trying to accumulate some stocks.
But I am sure that unless the fundamental conditions change, you would see the same guys coming back say at around 4,300. So, these are basically the traders rather than the long-term investors.
Q: How do you approach this sector now? Infosys has taken quite a knock in the last couple of days. The stock is down almost 15%. Do you buy it now or do you think this sector will now not outperform like it has since the start of this year?
A: In the last quarter, it really outperformed and the sector had become overweight in a lot of mutual fund portfolios. The results, while they were reasonably good, did not really sort of outperform the market expectations except in the rupee guidance, which the market took anyway for granted.
So, a lot of those positive factors like rupee depreciation were already built into the price and that is why we have seen such a big fall. The issue here is that the sector is facing two or three very strong headwinds. One is the US situation, in particular the BFSI segment. So, there is a fear that that could worsen going forward over the next 12-15 months.
Secondly, Infosys has already taken guidance at Rs 43.04. So, if there is an appreciation in the rupee from here then that guidance could get affected adversely because they are only hedged for one quarter and not the remaining three quarters.
Thirdly, going forward, the absolute growth rate in dollar terms are obviously not going to be more than 20%. It may be between 17-20%. Then there is a tax issue going forward in 2010-11, which means that over the next two years you are not going to see more than 15-17% CAGR and increase in profits. That is why valuations are going to come down and probably a company like Infosys is going to get only 17 or 18 times forward valuations. At this price it is right now at about 16 times.
It looks as if there is going to be rangebound movement. The stocks do not look expensive. But the way we have seen selling happening in the last two or three days at very heavy volumes on Friday particularly, you are not going to see too much upside either.
Q: What do you make of the market's reaction to Axis Bank numbers? The numbers looked fine on the face of it. But the stock got hammered after the numbers. What is it telling you about the market and about the sector?
A: Firstly, most of their growth in this quarter has actually come from increases in other income, which is going up. In the last 3-4 quarters, it has been going up at the rate of 50-60%. So, obviously, there is a limit to that growth.
The NIIs (net investing income) have been growing pretty well. But obviously with headwinds that the banking sector is facing, it is going to slowdown. Provisioning is going up because interest rates are going up and so corporate bond portfolio are getting hit.
The market says that, going forward, at some point in time growth will slowdown even in Axis Bank. At 2.4 times or 3 times adjusted book value the stock is not pretty cheap.
While there is not much downside to it, today's performance of the stock shows that there are a lot of companies where good results are expected. The market has already factored them in.
All the good news has been factored in manufacturing companies where there are valuations in terms of PEs ranging between 20-25 or 30. If there is a little bit of a disappointment, then one can see these stock prices coming down.
