Harendra Kumar, MD, institutional equities, Elara Capital
The current rally will consolidate, as the risk-reward ratio is very favourable right now. The domestic macro situation is extremely strong and the rupee has held up. Cement growth was 6% in the June quarter and has now come in at 9%; port and road traffic volume is also up. Commercial real estate absorption is up 20%, indicating an uptick in office buying. Credit growth has gone up to double digits. All this will percolate into an earnings recovery for Nifty companies. Also, as far as reforms are concerned, in the last week, four bills related to oil and gas, metals and mining, real estate and shipping have been passed, after a year of logjam. Bank recapitalisation is also happening. We believe Nifty earnings will grow 17% in FY17 and the Nifty will climb to 8,500 over the next 12-15 months. With the Nifty at 7,200, India’s market cap-to-GDP ratio is 70%, whereas our historical average is 85%. So, there’s value in the market.
Rajesh Cheruvu, CIO, RBS Private Banking
I am cautious about the market. This is on account of the weak performance in corporate earnings and the lack of big-bang reforms. While there is headway in less significant reforms, for a sustained market rally, you need far-reaching bills like GST, Bankruptcy Code, etc. to pass. The capex cycle also has not really taken off since consumer demand is weak and companies are operating at 75% capacity utilisation, which needs to move up to 85% for the cycle to revive. The government’s consumption stimulus will need six to eight months to take effect and for demand to revive. But in the short term, particularly in the next quarter results, we are going to see pretty abysmal earning numbers. So, as we move towards the earnings season, the market will give up the gain it has made so far and we could see a correction. Only when demand and earnings recover and big-bang reforms are introduced will there be a sustained uptick in the market.