Nifty likely to touch 8,900, fall up to 5% if GST disappoints, says Piyush Garg of ICICI Securities
the benchmark indices are richly valued at this point in time as compared to other emerging markets and hence the current move on Nifty may stall in the range of 8600-8900.
- Jul 27, 2016,
- Updated Aug 25, 2016 9:34 AM IST
With Centre and state governments ironing out differences over Goods and Services (GST) Bill, the hopes on the passage of GST have glistened yet again. However, any disappointment on this front may cause Sensex and Nifty to correct by 5 per cent from current levels, told Piyush Garg, Executive Vice President & Chief Investment Officer ICICI Securities to Business Today. He also said that benchmark indices are richly valued at this point in time as compared to other emerging markets and hence the current move on Nifty may stall in the range of 8600-8900.
Q) Many on the Street believe market valuations are toppish. What is your view?
Piyush Garg: At the current levels, the benchmark indices are trading at ~19x FY17 EPS (expected) which is quite rich as compared to other emerging markets and hence the current move may stall in the range of 8600-8900. Any further re-rating on earnings can provide for future upward scope
Q) Is not market factoring in the passage of GST Bill? How realistic the expectations are? What if the government fails to bring political parties on board?
Piyush Garg: Currently market is factoring a lot on GST bill passage in Rajya Sabha, the possibility of which has increased post recent Rajya Sabha elections and regional parties coming on board. Any disappointment on this front may lead to nearly 5 per cent correction from current levels.
Q) We have seen a liquidity-driven rally. Central banks globally are cautious and chances of aggressive rate hikes by the US Fed this year are diminishing. Given over Rs 8,000 crore of inflows this month, can we expect the trend to continue?
Piyush Garg: Global liquidity is here to stay as risk to global growth rising on China slowing down and UK moving out of EU. All major developed country central banks are on easing spree as inflation also fails to pick up and the trend is expected to continue for some time.
Q) How attractive the domestic market is vis-a-vis Asian peers? Is there any external risk to domestic market?
Piyush Garg: Given the domestic macro situation and growth scenario, Indian markets are well placed in the EM basket and owing to the same it is trading at a premium as growth is a scarce commodity. On the external front a considerable rise in oil prices would be serious risk to the fiscal deficit and inflation and may lead to de-rating of the markets
Q) Which sectors may deliver well in the ongoing results season? Name a few pockets that still have margin of safety.
Piyush Garg: Owing to moderation of inflation and pick up in monsoon after 2 years of deficit, the consumption sector especially FMCG and 2 wheelers may be poised to do well. Further, Pharma and Oil & gas may do well owing to the base effect.
Q) The fourth quarter results were poor for public sector banks. How are you reading into the initial results announced by banks? In the backdrop of govt capitalization, when will the tide change for PSBs?
Piyush Garg: Initial results from banks have pointed to slowdown in slippages and creation of NPAs. However with the major PSBs still to come out with Q1FY17 numbers, it is still too early to comment on the same. The PSB recapitalization by the government is the step in the right direction as it is front loaded and gives the banks headroom for credit growth and raising funds from secondary markets.
With Centre and state governments ironing out differences over Goods and Services (GST) Bill, the hopes on the passage of GST have glistened yet again. However, any disappointment on this front may cause Sensex and Nifty to correct by 5 per cent from current levels, told Piyush Garg, Executive Vice President & Chief Investment Officer ICICI Securities to Business Today. He also said that benchmark indices are richly valued at this point in time as compared to other emerging markets and hence the current move on Nifty may stall in the range of 8600-8900.
Q) Many on the Street believe market valuations are toppish. What is your view?
Piyush Garg: At the current levels, the benchmark indices are trading at ~19x FY17 EPS (expected) which is quite rich as compared to other emerging markets and hence the current move may stall in the range of 8600-8900. Any further re-rating on earnings can provide for future upward scope
Q) Is not market factoring in the passage of GST Bill? How realistic the expectations are? What if the government fails to bring political parties on board?
Piyush Garg: Currently market is factoring a lot on GST bill passage in Rajya Sabha, the possibility of which has increased post recent Rajya Sabha elections and regional parties coming on board. Any disappointment on this front may lead to nearly 5 per cent correction from current levels.
Q) We have seen a liquidity-driven rally. Central banks globally are cautious and chances of aggressive rate hikes by the US Fed this year are diminishing. Given over Rs 8,000 crore of inflows this month, can we expect the trend to continue?
Piyush Garg: Global liquidity is here to stay as risk to global growth rising on China slowing down and UK moving out of EU. All major developed country central banks are on easing spree as inflation also fails to pick up and the trend is expected to continue for some time.
Q) How attractive the domestic market is vis-a-vis Asian peers? Is there any external risk to domestic market?
Piyush Garg: Given the domestic macro situation and growth scenario, Indian markets are well placed in the EM basket and owing to the same it is trading at a premium as growth is a scarce commodity. On the external front a considerable rise in oil prices would be serious risk to the fiscal deficit and inflation and may lead to de-rating of the markets
Q) Which sectors may deliver well in the ongoing results season? Name a few pockets that still have margin of safety.
Piyush Garg: Owing to moderation of inflation and pick up in monsoon after 2 years of deficit, the consumption sector especially FMCG and 2 wheelers may be poised to do well. Further, Pharma and Oil & gas may do well owing to the base effect.
Q) The fourth quarter results were poor for public sector banks. How are you reading into the initial results announced by banks? In the backdrop of govt capitalization, when will the tide change for PSBs?
Piyush Garg: Initial results from banks have pointed to slowdown in slippages and creation of NPAs. However with the major PSBs still to come out with Q1FY17 numbers, it is still too early to comment on the same. The PSB recapitalization by the government is the step in the right direction as it is front loaded and gives the banks headroom for credit growth and raising funds from secondary markets.