Though markets have managed to float above the alarming levels, experts foresee an impending correction.
Markets may dip 5-10% and has advised to use corrections as a buying opportunity.
"If you look at six-12 months from now, I am fairly positive on the market. What you would find from time to time is profit taking maybe a bit of consolidation but I am not looking for significant pullbacks, 5-10% is the most likely pullbacks. Those will be periods of accumulation opportunities," he explained.
According to Kumar, both commodities and earnings of companies will continue to support markets.
Kumar also added that cement valuations are reasonable with a two-yr perspective.
Q: What is your sense ? are we bracing ourselves for a bit of a cut out here or do you think it is a pause before the rally resumes again?
A: I think the market is in good shape. If you look at six-12 months from now, I am fairly positive on the market. I am not looking for significant pullbacks, 5-10% is the most likely pullbacks you will see from time to time on profit taking and other factors. Those will be periods of accumulation opportunities.
Q: What did you make of the staggering USD 37 billion that we got for Coal India? Does it instill some more confidence and the kind of money that the markets can raise?
A: Absolutely. You have much bigger scale fundraisings done in other emerging markets in the recent past be it China or Brazil. But this level of interest, which has come into such a large size issue, is a good indication that India is now mainstream. As far as global flows are concerned and the issues are there, if they are good quality issue prices reasonably it is going to see a lot of attraction in terms of global flows.
Q: There has been a lot of attention on the last couple of sessions about what?s going on in China, whether rates might harden and whether commodities might get dented back. Do you see any of these as risks going forward or do you think its incremental global noise which will not lead to or induce any major correction?
A: I don?t think it will induce a major correction but what has happened in the last couple of quarters, is that India has got more than a proportionate share of the global flows. As the growth recovery happens and as China also attracts little bit more attention, it is very well possible that some of the attention could also be diverted towards China.
On a sustainable basis, I do not see it causing a deep correction. On the commodity front, it?s important to point out that we have an extremely positive view on the commodity sector over the next couple of years. Commodities will continue to do well and that is something which maybe a bit of a dampener in some of the other sectors but aggregate on an overall basis, is not going to be something which is going to be a reason for major concern for the Indian market.
Q: In the medium-term, how do you see the markets pan out? Post this 5-10% correction that the markets will digest, do you think we can take it to new highs?
A: Yes. Absolutely. The concept of new highs or record levels, to some extent, in a growth market should be natural, that over a period of time we keep creating new highs. If you look at the macro over the next couple of years, that looks pretty strong. Some of the growth drivers are in place.
This financial year is also going to be the year of transition when the growth drivers are shifting from some of the one-off factors like the government stimulus etc to more structural factors like capex etc. The next couple of years look fairly strong to me on the macro side and that should give you around 20% earnings growth which is what is going to underpin returns from our equities market.
Q: What have you made of earnings season so far? Do you think for the next couple of quarters before this fiscal is out, earnings will remain supportive to equities heading higher?
A: Yes, earnings will remain supportive. What you will find is in some of the sectors where the bottoming out of earnings is yet to happen and in fact one such sector we are quite positive on is cement.
We think, between this quarter and the next quarter, the fundamentals and earnings will bottom out, so that in a market which has come back up to 20,000 where value is becoming increasingly difficult to find, I think that is one sector where you still have mid-cycle valuations. But broadly on an overall basis, earnings will be supportive not just for the next two quarters but for the next two years.
Q: We did some correction in commodities stocks yesterday, mostly all of the metal stocks. If you are bullish on commodities, do you still think there is value? Should you be using these bouts of weakness to accumulate?
A: Yes. That is our view and that is our global view as well. Across the resource sector, we see sustained strength over the next couple of years more particularly in copper, iron ore and coal as well. Most of these consolidation or profit taking events or situations in the market would be an opportunity to accumulate the resources sector.
Q: From the heavy weights, where else would you deploy your money in terms of sectors and which sectors you think could really take the markets higher now?
A: In terms of a house view, a couple of sectors that we pointed out to are cement and autos. It will take another quarter or so for cement to bottom out. That is typically the time to accumulate those sorts of sectors. Autos are in a sustained trend and that will continue.
If you look from the recent underperformer?s category, over the last six-12 months, real estate has been one of those underperformer sectors. A little bit of volume and price momentum comes back into the sector and you will find that real estate could be one of the sectors which will have a better performance over the next three-six months.
On a longer term basis, in the next one-two years or beyond, some of the sectors like financials remain as one of the absolute core holdings to own in this kind of a macro environment as well as in the market with the liquidity that we are seeing. That is one sector, which has the potential to take in and absorb a lot of liquidity, as well as benefit from broader macro growth performance that you are going to see in India at least over the next two years.
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