Nifty to Resume Upmove After F&O Expiry; Worst Over for Pharma: Geojit BNP Paribas
Nifty could move beyond 8,800 and beyond, says Geojit’s Gaurang Shah
The Nifty has been caught in a narrow range for the last few trading sessions, as investors look for clues on how aggressive the U.S. Federal Reserve will be in its approach to tightening.
There’s a 26 percent chance of a rate hike in September, according to data compiled by Bloomberg based on Fed fund futures.
However, Gaurang Shah, vice president, Geojit BNP Paribas Financial Services expects Indian equities be largely unaffected by the two-day Jackson Hole summit, where Fed Chair Janet Yellen is scheduled to speak.“Even if they do [speak of rate hike], I think our market is very resilient and we are quite capable of bouncing back,” he told BloombergQuint in an interview.
Below is an edited excerpt of that conversation.
Both the Nifty and Sensex were virtually unmoved for the entire trading session. Do you think that was the Fed effect or there is more to it?
Firstly, I don’t think that the Jackson Hole meet and the statements thereafter are going to create any kind of huge concern for our market or the global markets. Even if they do, I think our market is very resilient and we are quite capable of bouncing back.
The sluggish-to-rangebound movement of the last three sessions was largely due to the F&O expiry. But in the last half-an-hour or 45 minutes, it was good to see the market move to higher levels and close on a positive note.
My sense is that once the expiry is over for August, and we enter the new contract for September, we should see buying coming in. I don’t think it’s going to be very difficult to cross 8,700-8,730 on the Nifty Spot. We could gradually inch up higher to maybe 8,800 and beyond.
So, if you have opportunities — maybe at 8,600 or 8,580 where we have been very recently — from a long-term point of view it will definitely be an opportunity to buy and participate and get invested in the market.
FIIs have turned net sellers for the first time in 30 days. Do you expect the selling to intensify in the days to come? Especially if we get some hawkish comments from the Fed chair tomorrow?
It’s not been that long since we saw the Fed minutes. The outcome of Jackson Hole statement is not going to be any different than what they have already said. So, my sense on flows is that, as far as FIIs are concerned – they have been buyers for the last many weeks and months — if they sell on certain days, I don’t think that should be any great concern for our market.
Net-net, you are going to see inflows come into the market as far as FII investments are concerned.
Pharma stocks, led by Aurobindo Pharma, did well today. However, their performance this year has not been all that good. What is your take on the drugmakers?
We have been positive on the sector for the last one year despite the issues related to the U.S. FDA or the U.K drug regulator or the domestic price control of 340 plus medicines. We have also maintained our view these companies and managements are capable of overcoming any negativity in terms of FDA Form 483 or product recalls or not maintaining good manufacturing practices or any defects that are found.
After seeing the first quarter results of certain pharma companies, my sense is that the end of bad times for Indian drugmakers is drawing to a close. I also believe that earnings will improve as we go forward. Resolution of certain facilities will also be on the cards.
My sense is that new product launches and approvals will add to the earnings visibility. So we remain positive on the pharma sector. Aurobindo Pharma is just one example of things turning around.
A sector that has been doing well in recent times is the oil and gas space. Even today, the index rose little over a percent outperforming the broader Sensex. Do you think there is more room left on the upside?
I would like divide the oil and gas sector into two: 1) upstream and 2) downstream.
On the downstream first. The earnings of the oil marketing companies were much better than what our estimates were and we believe that profitability is likely to further improve under the market-linked price regime.
Second, crude oil prices have been stable. Our sense is that the range is going to be between $45 per barrel on the lower side and $50-55 per barrel on the higher side.
Third, I don’t think there is going to be any meaningful output freeze that will come through as far as the OPEC is concerned. And more so getting Iran on-board is going to be equally difficult because the country has been deprived for almost more than a decade of $100 plus crude oil prices. They are second and the fourth largest producer of crude oil and natural gas respectively.
Our bilateral trade with Iran safeguards us against any huge volatility in the crude oil market. So, my sense is that oil-marketing companies will definitely perform better. We have coverage on all three oil-marking firms.
On the upstream companies, that is, the exploration side, the subsidy burden now being taken off from Oil India and ONGC is definitely going to add positivity to the earnings visibility. One has to remember that if you are investing in oil exploration companies, then the gestation period is equally longer and so is your investment time horizon.
So, I believe there is tremendous amount of positive traction in the exploration companies from here on, with the subsidy burden going off for most of them.
What is your call on the metal counters like Vedanta, Hindalco, JSW Steel that have run up quite a lot this year?
So from Rs 60 to Rs 150 on Hindalco — it has more than doubled. From Rs 70 to Rs 175 on Vedanta — again it is a similar case. What remains to be seen is: how the environment, as far as demand is concerned, is revived. Firstly, on the domestic front and you can speak about the export market, which is dominated by China dumping across the globe.
Second, as far as the flat and the long cold-rolled steel prices are concerned, they have seen traction on the upside but on a minor scale.
Thirdly, as far as the input cost is concerned, I hope it remains steady and there is no huge fluctuation.
So, I am not surprised to see profit-booking in the metal pack, given the kind of run-up that we have seen in the last three to six months. Profit-booking is definitely a good thing in the stock market and it definitely gives opportunities to new investors to come and buy stocks and older investors to get out.
I would be very specific in the metal pack if I were to go and out buy something. Possibly, something like a Vedanta or a JSPL, at lower levels, would be on my radar.
What are the triggers that you would be watching out for going forward? What would your advice be to investors in this sort of a consolidating market?
One should not lose heart; consolidation is always healthy and better because we make a stronger base for the next upmove. If you go up on a very hollow base or a weak foundation, then you are likely come down as well like a house of cards. So, I am actually glad that we are spending this time between this 8,550-8,580 on the lower side and maybe 8,650-8,670 on the higher side.
My sense is that all opportunities on the lower side should be viewed as buying opportunities from a long-term point of view. However, you need to bear in mind what sectors you are buying and within those sectors what are the stocks you have identified to invest in.
In terms of news flow, formation of the GST committee and other policy changes from the government’s side will throw in positivity. In terms of earnings, there are signs of bottoming out and I hope that India Inc. delivers better numbers in the quarters ahead.
