Despite recent bouts of corrections which have unnerved many investors, Deven Choksey, managing director, K R Choksey, remains bullish on Indian equity markets and expects Sensex and Nifty to reach 33,500 and 10,500 levels by December 2015. Speaking to Faraan Tarique, he also shares his concerns about the fall in crude oil prices.
The volatility in global crude prices has generated a lot of nervousness among investors. However, OMCs, tyre and paint companies are likely to benefit from the fall in prices. In this regard, what would be your advice to the retail investors? Should one increase exposure to such companies?
The decline in oil prices is simply a transfer of purchasing power from the producers of oil to its consumers. The obvious positive is that this transfer of wealth should lead to a boost in consumption. A $40-a-barrel decline in prices will lead to a transfer of $1.3 trillion a year. While this is a short-term positive for global growth, as consumers spend and consumption accelerates, it will imply a decline in global savings, which may have longer-term consequences for the financial markets and interest rates.
Sustained fall in crude oil prices will lead to build-up of inventory and excess liquidity in the markets which can fundamentally alter the economics of many players in the value chain. We believe sectors like OMCs and paint companies will stand to benefit from decline in crude oil prices; however, investor should focus on quality earning generators and superior return ratio companies within these sectors.
To what extent Indian equity markets will be influenced by the movements in the Chinese markets? Particularly, how do you see the metal stocks to perform in near future, given the concerns over Chinese economic growth?
Chinese economy has been struggling to recover due to asset bubble and weakening growth cycle and investments. We have seen severe downturn in the commodities, especially crude oil, in the last three months. Metal stocks have unperformed with wide margin against the benchmark. As there are no recovery signs from the Chinese economy, continuance of under performance by metal stocks can be expected.
The fall in benchmark inflation indices has reinforced expectations of a rate-cut by RBI early in 2015. What are your predictions in this regard? If the central bank insists on maintaining its hawkish stance on inflation in February and defers rate-cuts to the next policy review, how do you think the rate-sensitive stocks will react to the news?
Recent macro data releases are also reflecting gradual growth recovery and sustained dis-inflationary trend in the economy. Fifth bi-monthly monetary policy review has clearly indicated a mild shift in favour of beginning of rate easing in 2015. From medium to long term perspective, we remain bullish on rate sensitive players like banks and NBFCs. We believe private banks will continue to deliver consistent and quality earnings growth over PSU banks. PSU bank will see two positive deltas in the form of loan book growth and containment of asset quality.
In 2014, broader markets have over performed their larger peers. Do you think the trend will repeat itself in 2015? Which ones would be your preferred sectors in the mid-cap segment?
With the Nifty in a consolidation phase, the market is giving opportunities at every stage. There is no fundamental weakness because of which it is believed that not just midcaps there are also opportunities for large cap stocks. It may be a good idea to invest in some of the select tyre companies, but only on dips. Other than that, cement companies, some of the NBFC companies and holding companies of insurance business look attractive. In the PSU banks, the government is clear that it wants to bring down its stake. We believe that large cap PSU banks may be a good buying opportunity.
Indian markets have gained around 35% in 2014, so far. What would be your estimates for the Indian equity markets over the horizon of six months and twelve months?
We believe in near term Indian equity market may correct 2% to 3% on the back of FII tax shield impact, dollar strengthening and profit booking after such strong rally since the Q2FY15. We expect Sensex and Nifty to reach 33,500 and 10,500 levels by Dec 2015.