In an interview with Varsha Inamdar of Myiris.com, Mohit Modi, Director Equities, CRISIL Research says, ''Retail investor should follow a stock specific approach, invest regularly and also stay with the fundamentally strong and market leaders in the respective industries.''
1. Where do you project levels for Sensex and Nifty by FY13?
Earlier, during the year we had put out FY13-end NIFTY range at 5,750-5,850 and we maintain the same. Markets are expected to be range-bound in H2FY13 with upcoming events such as Fiscal Cliff and Union budget. Further action on policy reforms will also provide guidance to markets. Corporate earnings growth is expected to remain muted in FY13 due to slow demand, cost side pressures and high interest rates. The market is expected to trade to lower P/E multiple of 13-14x compared to historical trend (decadal median P/E of 14.6x). Our Nifty 50 EPS estimates are 393 and 444 for FY 13 and FY 14, respectively and our fair value range for Nifty is 5,750-5,850.
2. How do you see near-term market outlook?
We expect market to remain range bound. Factors like policy action, fiscal cliff in the US and Eurozone news flow would continue to keep investor sentiments under uncertainty. While markets seem to be fully valued as of now, they have potential to go up if we see further action on the policy side. Given the slowdown in the economy on investment side, the ability to push reforms and bring back the economy to high growth level can provide high impetus to the equity market.
3. How do you see outlook for global markets? What remains the downside risk to global equities?
The impending fiscal cliff in US and uncertainty in Eurozone are the key risk to the global equities in the short term. Any delay in decision regarding fiscal cliff would impact global equity market and lead to risk aversion among investors. Eurozone's GDP fell in both Q2 and Q3 of 2012 and there is a 40% probability that a recessionary trend may continue through the next year as well. Austerity measures, which were much required due to tight fiscal situation in many countries are not helping in getting out of such a recessionary trend. If the situation continues well into 2013, we may see some impact on the emerging markets equities. So far, Indian markets are supported by the foreign flows (FII's net buying of Rs 937 billion till October- 2012. DIIs have been largely sellers), created out of the liquidity operations. An increase in risk aversion among global investors could lead to a sharp reversal of the flows which have the potential to push down valuations on Indian bourses.
4. What is your stance on overall economy?
The macroeconomic condition remain challenging. CRISIL Research expects GDP growth to be at 5.5% for FY13. Lower GDP growth would also bring down growth in the government's revenues. Therefore, fiscal deficit is expected to be at 6.2% of GDP in 2012-13. Given inflation risk, CRISIL Research only expects 25-50 bps cut in the repo rate by RBI by March 2013.
5. Would you like to share anything else with our readers?
At this point of high uncertainty and volatility, a retail investor should follow a stock specific approach, invest regularly and also stay with the fundamentally strong and market leaders in the respective industries. Fundamentally good companies are expected to perform better in long term despite short term volatility. The export-oriented sectors like IT and Pharma are expected to continue to do well due to rupee weakness. Our view on rupee by FY13 end is Rs 53 to a dollar. For the full year, the average USDINR rate is expected to be 55. Consumption plays like FMCG, brand plays (consumption space) are expected to continue to perform good. Policy dependent sectors such as infrastructure and power can also provide uptick, if we see clarity on policy related issues. Banks, particularly PSUs, can see increased NPAs. However, any rate cut over the next 2-3 months should boost growth in loan books and investment income.