See 50 bps rate cut, good equity returns in’15: HSBC India

Jitendra Sriram, MD & Head of Research at HSBC India says the house is more positioned towards equity markets at this juncture because we are a cusp of recovery. He expects equities to give better returns than debt markets in 2015.

In 2014, debt was a big play because India was probably the only market amongst emerging and Asian markets with higher interest rates. However in 2015, rates could move higher globally and soften in India.

He expects a 50 basis points rate cut by RBI through the year. Meanwhile, US Fed is also likely to hike rates by Q3 of 2015  because the US GDP growth is more conducive for a rate hike, says Sriram.

According to him 2015 is going to be an earnings tracker and India is likely to grow in mid-teens

For the upcoming year, the house would focus on industrials and metals space because he thinks industrials would  be  a big play on the IIP recovery. Metals too could see recovery post coal auction etc, he adds.

On the other hand he is skeptical of upstream oil companies since they are directly corelated to weakness in crude prices and autos because they are likely to see some demand pressure due to excise duty rollback.

He is also upbeat on the utility space and sees telecom consolidating with the return of pricing power.

According to him there could be lot of money rotation in the defensive space.

Latha: What sense you are getting first of 2015 at macro level for the market, is it as good a year, is it likely to return 30 percent, is it likely to return half that amount or is it likely to be one of those meandering years?

A: I would argue that probably 2014 was a year of a rerating catalyst; a stable political disposition also the fact that probably the macro is on the mend, the crude prices have come off, so it augurs well for India macro report card. However, all these things have got discounted in the theme.

My suspicion is that 2015 is going to be an earnings tracker, so if I look at where we are positioned right now – we are probably arguing for about somewhere in the mid-teens kind of a growth for India and I would suspect that after the initial phase of rerating catalyst, you should probably expect the market to trend in sync with earnings. So that is the kind of return we would expect from the market.

There are multiple other factors; global factors like when the Fed starts acting or what is the extent of dollar strength, telecom auctions, coal auctions all these things are there in one cue but that would be the main things to watch out for.

Sonia: You were pointing out the gains that one could see in the equity market but Indian debt is also becoming a very attractive option with the potential lowering of interest rates. How would you allocate assets in 2015 between equity and debt?

A: I would say debt in 2014 has been the big play because India had very high levels of interest rates compared to rest of the emerging markets or rest of Asia and as a result you have had a situation which people have come in. In fact, if I recollect correctly the debt flows this year have been as big as the equity flows so far.

Therefore, I would reckon that you will have a situation that next year you will have a kind of disconnect where globally you will start seeing rates starting to inch up because of Fed moves whereas India could potentially have some degree of easing whether it happens in Q1-Q2 – that is till left to how the inflation trajectory plays out but I would definitely expect and we are forecasting that we should see about 50 bps easing in RBI rates through the year.

So, I would definitely say that you should have that situation play out for the Indian markets. People with stock of debt will see that impact filter through in terms of appreciation there but at this juncture I would be more positioned towards the equity market because we are on the cusp of a recovery and that will start getting built in over the course of the next two quarters or so. And as that comes in and we start playing the earnings growth trajectory and the uplift in earnings, I would expect that equity from hereon should start seeing better returns than what debt has given thus far, but we are talking about two very different risk appetites here.

Latha: There is still that event of Fed rate hike; there is still the event of potential red flags in Europe as well. What are the kinds of global jitters you see in spite of it being well discounted, will there still be some fairly volatile jitters in global fund flows around or before the Fed rate hike. When would that be?

A: Our call is that we are looking at Q3 of next calendar when Fed starts to make its move. I think volatility will come back and that is something which we are more certain about that volatility will be there to bite when the noise around the Fed starts building up, when the actual timing of the hike starts to come through and the latest print of gross domestic product (GDP) from the US is also probably more conducive to argue for a rate hike as such. So that is definitely going to be there.

I would suspect that the other part is probably people are looking at only one part of the good story and we need to look at both sides of the coin. One part is it is great news for India macro that crude has slipped and it has come down to the levels that it is at currently but the other factor is that weaker crude prices also reflective of probably a weakness in global demand as well and which could mean that you could have a lot of oil exporting countries which find it difficult to balance budget, which find it difficult to undertake fresh capex and so on which might have some bit of trip up in terms of what we look at for growth coming through.

Sonia: Sectorally what could be the leaders of 2015?

A: If I look at the overall market in India, I would say that the two sectors that probably are still depressed in terms of their overall capital efficiency is industrials, which will probably be a big play on the Index of Industrial Production (IIP) recovery which comes through. So that will be one sector to watch out for in terms of leading the market. Therefore, industrial is something that we are quite excited about.

The second area is the metals pack and there the trigger is more in the first quarter as they start bidding for resources when the coal auctions and so on come forth and these two sectors could potentially be the triggers that might probably be what one has to look at. To give some colour on the metal sector for example in the mid-2000 we used to have a return on equity of 30 percent plus whereas it is probably in the sub-10 percent right now. So you have a large degree of catch-up which can come through in this sector.

Latha: The other point you mentioned about the weakness in the global economy especially in commodity exporting countries should be factored in into the demand scenario for Indian companies. Is there anybody’s earnings that you would trim therefore, any sector that would be casualty of weak global growth in some pockets?

A: One which can take a little bit of knock around is upstream oil companies, so that is something which is clearly directly correlated with the weakness in crude prices. The other one is something where you are seeing the implications like higher taxation level like autos could be another area which potentially if you have excise increases and stuff like that, at the end of the day there will be some elasticity of demand which will come through in the near-term. It may not continue for a long period of time but at least temporarily there will be some dislocation in demand.

So these sectors could see some pullback in case there is some kind of nervousness around the environment.

Latha: As you step into the new year, where would you be weighted?

A: We would definitely be more overweight on industrial space, so whatever index you are looking at or you are comfortable tracking – that’s a sector that we would be overweight on.

Utilities is another area where we think there is lot more juice left because that’s a sector that has not performed too well on the market thus far.

Telecom is also another area where the competition level is starting to come off and you are seeing some degree of consolidation and a slow return of pricing power as well, so that is another area that looks interesting.

However, other than that I would say the defensive space which has seen a big surge in RoEs over the last few years will probably be the ones where money might be rotated out of, so whether it is staples or healthcare, you might see some money getting pulled out of these sectors and move into areas which potentially offer richer growth compared to these more defensive sectors now.

Nifty may test previous highs before Budget: P Lilladher

Investors had lots of hopes from the Winter session, but after its complete washout, between now and the Budget, Ajay Bodke of Prabhudas Lilladher sees the Nifty consolidate between 8000 on the lower side and the previous highs on the upside.

He believes that the government needs to push through as many administrative reforms as it can and also take up pending reforms such as the land bill to make it easier for infrastructure companies to acquire land.

Bodke believes that the third quarter earnings will be on expected lines. He still has a base case of Nifty earnings growth at 13.5-14 percent in FY15. He feels among cyclical stocks, auto companies will lead the market.

He recommends investors to buy  Infosys and  Tech Mahindra with a one-year view among large-cap IT stocks and  Mindtree in midcap IT space.

He is also bullish on  Tata Motors as it offers very strong opportunity in autos.  Maruti Suzuki continues to remain his top pick in the auto space.

Need to take radical steps to boost manufacturing: Jaitley

Finance Minister Arun Jaitley has said that radical steps needed to be taken to boost manufacturing in the country.

“Manufacturing is where the jobs are,” Jaitley said at a public event, adding the sector had the potential to grow at 13-14 percent.

He said the entry point into manufacturing had to be eased to be able to create more jobs.

Referring to RBI Governor Raghuram Rajan’s remark that the Make in India campaign should be targeted more towards domestic demand and not so much the export market, Jaitley said: “Whether Make in India is made for consumers within India or consumers outside, is not so relevant. The principle today is that consumers across the world like to buy products that are cheaper and of good quality.”

Jaitley said growth in FY16 would be better than that in this fiscal.

Earlier, he told mediapersons that that the suggestions made by the finance ministers of various states would be considered while formulating policies in the Budget.

“Some state FMs even requested that the FRBM limit (Fiscal Responsibility and Budget Management) be raised this year in order to infuse liquidity in the market,” Jaitley told reporter.

“Most states also wanted centralisation of the CSS (centrally sponsored schemes) so that they could be more attuned to the state requirements.

Several states made suggestions with regards to state specific issues. We will consider all these suggestions while formulating our policies in relation to the Budget,” Jaitley said.

Nifty entering trading range with 8100: Sudarshan Sukhani

In an interview to CNBC-TV18, Sudarshan Sukhani, shared his reading and outlook on market and specific stocks.

Latha: Does expiry leave negative vibes for today?

A: It does leave negative vibes because some of it was expiry but 110-120 points is not just expiry so the short-term trend that we were talking about where we were long was topped out at 8,190 and even though the trade was taken at 8,200 but still the very fact that we gave up all the profits – that’s not comfortable. The intermediate positions are held on because the stop there is 8,100. I am giving the stops and the levels because people who have positions should know what they want to do. However, what to lookout for the Nifty is difficult to say. It is quite possible that the Nifty is entering a trading range with 8,100 as a floor and maybe 8,350 as some kind of resistance and it could chop around for the next few days – that’s is the best case scenario.

Sonia: You said for the next few days so what would your prognosis be for the January series. You think it would continue to be range bound or is there a big directionally move that we should look for?

A: Because we have already started building this range apparently in the end of December, some time in January there is going to be a breakout from the range, it will not continue for the full month. If that is so then we have to anticipate whether we are going above 8,300 or below 8,100 while I would still assume that we will breakout on the upside and make new highs again but there is a caveat, if we start breaking below 8,100 then we won’t take long positions, we just have to accept what the market will do.

Latha: You have a buy on ACC ?

A: Cement stocks are now coming out of a correction. They already have a small rally impression of willing to breakout. If the Nifty is in a trading range, some stocks will go up, some will go down, that is how the trading range will continue. So because we are in a bull market, our natural bias is for buying.

Sonia: State Bank of India (SBI) is something that you would buy as well today?

A: SBI is something I would buy every time at every minor dip, I would not worry about any corrections. They are going to correct, it is not a big deal but it is one of the best picks in the investors’ list that is what today of course, it is a short-term trade.

Latha: While on the subject if you could tell us about the Bank Nifty because it was the rank outperformer on Wednesday?

A: It was and it fell much less but that is all we can say for it and that is apparent to all of us that it is the easiest buy once the market gives a sense of stability. The Bank Nifty’s levels are 18,400, it has to close below that to tell us that the short-term positions should be exited. There even the short-term trade for the long side exists even now.

Latha:  Mahindra & Mahindra Financial Services is the sole non-bank finance you like or your old favourites  Power Finance Corporation (PFC),  Rural Electrification Corporation (REC),  LIC Housing also come in the same category?

A: They come in the same category. Mahindra & Mahindra Financial Services is a stock that is giving the sense of a breakout today. We like to focus on stocks that may move on the day when we discuss them but on a larger picture LIC, REC and PFC have entered strong bull market. There will be deep correction; this is not everyday going up. The market is not going to go up everyday, they cannot and we have to accept the corrections when they come.

Sonia: You have recommended a buy on Jubilant Foodworks ?

A: I thought of looking at the midcap category if the market is choppy then some midcaps will do well. Jubilant has been very volatile. It has gone up and suddenly come down, so assuming that the bias on today’s market is stable this could be a nice intraday or even a couple of days trade.

Latha:  JSW Energy is also on your list?

A: Energy stocks are building base, so this is probably the outperformer in that list but you have to tell why all of a sudden this laidback sector is coming into the forefront.

Latha: You have a sell call on Voltas ?

A: Voltas has been in an uptrend and suddenly the stock started collapsing and it could be for any reason but for a short-term trader Voltas is a short sell. The short sell should be taken only in context of number of buying positions if you have. Do not isolate and just take this one.


Jaitley to meet state FMs on Friday on upcoming Budget

Finance Minister Arun Jaitley will meet state finance ministers today to elicit their views on the forthcoming budget to be presented in Lok Sabha in February-end.

After meeting state finance ministers, Jaitley will start customary pre-budget consultations with different interest groups, including industry and trade unions.

He will be presenting the first full fledged budget of the Narendra Modi-led government in February. Last year, the then Finance Minister P Chidambaram had brought an interim budget in February for the fiscal 2014-15 and later in July, Jaitley presented a regular one.

The meeting with state finance ministers assumes significance as Jaitley is also likely to discuss CST compensation and other issues related to proposed Goods and Service Tax (GST).

A constitutional amendment bill for roll out of the new indirect tax regime was introduced in just concluded Winter Session after Centre and state governments reached a consensus on GST.

The pre-Budget meetings will be held against the backdrop of submission of report of the 14th Finance Commission, headed by former RBI Governor Y V Reddy.

Jaitley will hold pre-budget discussions with industry and trade groups on January 6, followed by agriculture sector on January 7 and social sector the next day.

He would seek views of trade unions on January 10, and of economists on January 13, sources said.

The Finance Minister would meet IT groups on January 14 and banks and financial institutions on the following day. The customary pre-budget consultations are considered important as it helps government in formulating policies.

See flat expiry session; buy into Jan series: AB Money

Hemant Thukral of Aditya Birla Money says the rollovers for December series are very healthy as are the rollover costs. In an interview to CNBC-TV18, Thukral says people are now showing supportive signs of coming back to the market.

Thukral says traders should use every dip in the market as a buying opprutunity.

“We will test 8400 level in the next few days and I don’t expect to see a lot of volatility today,” he adds.

. Latha: How would you trade the Nifty today, it has been a bit of a confusing trade?

A: Nifty has been all over the place because of the high volatility and I see the volatility coming off post today and with new fresh positions in the next series. If you see the rollovers, I don’t think they are at all bad because the rollover cost is very healthy, they are giving signals that people have started showing supportive signs of buying coming back yes we are all waiting when the FIIs will start to buy which I don’t expect them to buy till at least first week of January ends. So what I am recommending here is that as the new contract will start, I do expect some buying coming back because the January series Put writers are very active right from 8,200 to 8,000. So I don’t expect Nifty to breach 8,180-8,200 in spot. Yes, you may get a chance today at lower levels to enter because of expiry and today also I don’t expect expiry below 8,240-8,250. So I am of this camp that we may in next one week itself try to reconquer or retest at least 8,400 levels on the upside. So I will actually recommend people to buy into January series, any chance they get today on the downside keeping a stop loss of 8,200. I think we should in first half of the series at least that means till January 7 go and retest back 8,400-8,450 levels. So I will be buying at every dip currently.

Latha: But for today itself, where are your bets on in terms of the close of the contract?

A: I am of this belief that today we may not see too much volatility happening and I expect 8,240 and 8,300 within this range expiry to come in. So against the expectations I think expiry day may not turn out to be too volatile as I feel the majority of the rollovers have been done and both side positions have been cut, shorts have been squeezed as well as the yesterday longs also have been trimmed out. So I think we will have a slightly flattened out session today but as I said I expect expiry between 8,240 and 8,300 today.

No new taxes, poster-free city in Budget: NDMC panel

The Standing Committee of the NDMC today rejected all proposed new taxes and hike in old ones and sought to make the national capital “poster-free”, in the civic body’s budget tabled in its House today.

Chairman of the Standing Committee of the North Delhi Municipal Corporation Mohan Bhardwaj presented the budget in a special meeting of the House.

“The committee rejects all new tax proposals and hike in the old ones. We do not wish to put burden on the masses,” Bhardwaj said. The budget also proposed to end the tax on horse cart and other types of carts carried by animals, by amending the Delhi Municipal Corporation (DMC) Act.

Under the ‘Swachch Bharat Mission’, the committee also outlined a plan to make the city poster-free. “Under the proposed scheme, some sites and properties will be identified for sticking posters. Rest of the areas will be made a ‘zero-tolerance’ zone,” he said.

The panel also increased the budget for works to be carried out in unauthorised colonies. “A sum of Rs 100 lakh has been earmarked for CCTV  cameras in municipal schools. The funds for improvement of roads has been increased from Rs 5,200 lakh to Rs 7,800 lakh,” he said. ”

Budget for expenditure on women toilets has been increased from Rs 50 lakh to Rs 200 lakh and for women parks, from Rs 10 lakh to Rs 20 lakh,” he added.

The municipal commissioner in his budget speech in November had proposed a 50 per cent hike in base unit area value (BUAV) for property tax assessment, increase in lumpsum one-time street charge on vehicles and Rs 6 crore for ‘Swachh Bharat’ campaign.

But, with Delhi polls in the offing the BJP-led civic body played safe, by rejecting all the proposed new taxes.

Market to consolidate; like ONGC, Neyveli, Infy: SBICAP Sec

Mahantesh Sabarad, Dy. VP (Research) from SBICAP Securities Ltd (SSL) expects market to move sideways. The market is likely to consolidate because concerns in terms of macro data like IIP etc still remain and nothing positive has come out from the winter session to push the market up, he adds.

Stock specific, he is upbeat on ONGC , Infosys , Aban Offshore ,  Neyveli Lignite and FirstSource Solutions .

ONGC may have suffered because of fall in crude prices but going forward he thinks prices may bottom out and not fall sharply. With a CAGR growth of around 30 percent, the valuations  looks cheap.

For Aban Offshore he has an EPS estimate of Rs 110 and has good earnings visibility.

]Infosys, is a good pick from the largecap IT space since it is trading at cheap valuations compared to its peers.  Moreover, with Vishal Sikka coming in the stock is likely to rerate now, thinks Sabarad.

On Neyveli Lignite he thinks is a prime divestment candidate and has been insulated from the whole coal allocation news. He has a target price of Rs 126 per share on the stock.

Anuj: In your note you have said that you are expecting some kind of consolidation in the market for now. So in your sense you think the recent all time highs that will be a bit of ceiling for the market for sometime or do you see the market passing that before budget and then having a bit of consolidation?

A: Normally every year there is a budget rally that happens. So we will see some kind of attempt to cross the recent highs that the market had achieved in late November. But then broadly the trend seems to suggest that we will consolidate for a while before a reform push come the economy starts repairing itself. So the moment we will have that situation coming in, we will have some upgrades in earnings coming up. Also on the background is this whole rate cut hopes that we are belied by the RBI in this recent policy but sooner or later we will have a rate cut coming in.

So we will have an economy, which will be repairing itself along the way there are stumbling blocks, there are some macro data points, which are not appearing good so we have had an index of industrial production (IIP) fall of 4 percent last month. We have some bit of FII outflows now. We have had feeble foreign direct investor (FDI), we don’t seem to get any major economic bills through the winter session so on and so forth. So these are long-term objectives in long-term trends to be established. They have not currently been established, so the markets will likely trade sideways.

more to come

Disclosure: Registration Status:  SSL is in the process of making an application with SEBI for registering as a Research Entity as per SEBI (Research Analyst ) Regulation, 2014.

Mkt to consolidate till Budget at 8000 levels: Experts

In an interview to CNBC-TV18, independent market expert Ambareesh Baliga, Mayuresh Joshi of Angel Broking along with Sudarshan Sukhani of s2analytics share their outlook on various stock specific bets and where the market is headed hereon.

According to Joshi, market may consolidate till the Budget and find support at levels of 8,000. In addition, he sees market finding resistance at 8,650. He is bullish on Idea Cellular , Bharti Airtel , Eicher Motors  and Hindustan Sanitaryware & Industries Limited ( HSIL ).

Concurring with the view, Baliga sees market hovering around 8,000 in the first half of the January series. Moreover, he does not think the rebound by FIIs in the rally will last. Onto specifics, he is upbeat on DCB Bank  and Himatsingka Seide .

Meanwhile, Sukhani is positive on IT and banking space. He advises investors to shy away from oil and gas sector except BPCL  and HPCL .

B Q: The moneycontrol newsletter today headline read breakout above 8,250 is a buy signal. We have got that, so is this a confirmed buy?

A: Yes, we have got 78 points beyond that and we got it during the day, it wasn’t even a gap. So it was a good trade to be in and that applies to the bank Nifty also.

Anuj: As you expected it is the bank Nifty that is leading the charge. In fact month to date (M-T-D) positive now on the bank Nifty, what is the call here? We are within 100 points of an all time high on the bank Nifty. Would that be something that you would be looking for on an expiry day maybe?

A: It seems we will probably close at the highest level in terms of closing. That is also possible. These are records that are being broken regularly. One of the questions that came up just now when you were talking was whether Nifty is likely to make lifetime new highs again and I will answer that although you didn’t ask this directly but we don’t know. It is true that the trend is up but at this point we do not have any patterns to give us targets and say, okay 8700, 9000, 10000 but because it is a bull market even though we don’t have any targets we should be on the side of buying people.

Anuj: Okay, let me ask you directly then. At what point do you think the patterns would completely change in favour of the bulls and you would say, yes new all time highs are coming?

A: No, the patterns have already changed. Both of us had the levels of 8200, 8250. We said okay, we took a call, let us all buy. So this a pattern that is in favour of the bulls. Yes, you have to buy with all your normal quantity. So, there is no caution other than normal prudence required. So it is for the bears to prove their case and that would happen probably below 7950.

Senthil: How does  JSPL look on the charts, down 44 percent for the year, up of course 7-6 percent today?

A: Yes, you will be surprised to know my views which is that Jindal Steel apparently is building a base of some kind. It is not confirmed yet. We need it to go higher but once it crosses that 155-160 threshold and these are not magic numbers, they are just the breakout from the base, that is all. Perhaps this break out would be genuine, at this point I would not buy but it is worth watching.

Anuj: From January point of view what are the stocks that you think are going to lead the market apart from the banks that we spoke about?

A: It is very difficult to say what will lead the market. This market is not giving us clear and visible footprints but I would still be upbeat on banks and on the IT stocks that have not really taken off as they should have. So large cap and mid cap IT and the banks would be two sectors where a lot of focus should be given.

Menaka: Anything looks promising in this oil and gas pack to you?

A: Except for  BPCL and HPCL , both remaining favourites, I don’t see much prospects of the sector leading in the next few weeks and BPCL and HPCL are buy on every dip and that remains.

Senthil: You spoke positive about IT but a quick call on Wipro because in the sector that lagged even worse than its peers.

A: It is and we are not discussing  Wipro nowadays because the charts are so disappointing. It is much better to focus on the three large ones which are showing momentum, Tech Mahindra, Infy and TCS . It is a pity but Wipro is not tradeable at this point of time.

RBI simplifies ‘non-cooperative’ borrower classification

The RBI has simplified the definition of a non-cooperative borrower to include all those who have the ability to pay but still thwart lenders’ efforts to recover their dues, including by not providing necessary information.

“In effect, a non-cooperative borrower is a defaulter who deliberately stonewalls legitimate efforts of the lenders to recover their dues,” the Reserve Bank of India notified on Monday.

The new definition of a non-cooperative borrower replaces one the Reserve Bank of India issued in February, which had set several criteria including not providing required information even after two reminders from lenders.

RBI Governor Raghuram Rajan has made improving asset quality at lenders one of his priorities, and has publicly admonished “wilful defaulters” for eroding faith in the banking system.