‘Sensex at 22,000 is a possibility’

Global markets are correcting again and so are Indian equities. Speaking to Bloomberg TV India , Saurabh Mukherjea, CEO, Institutional Equities, Ambit Capital, says Sensex could touch 22,000-level as the market is becoming very tricky. The churn can dislodge some of the market leaders and propel up smaller companies. The rupee can depreciate to ₹70 to a dollar by year end, he warned.

What’s the macro picture and what has changed your view? What kind of trajectory are you expecting for the index?

Sometime in March 2015, we became bearish when the Sensex was around 30,000. And then during August-September, we ramped up our level of bearishness. In late August, I told our clients for the first time that Sensex at 22,000 is a real possibility. The market fell to 22,900 and then it rallied up to 26,000. But, my view remains that this is a difficult market to invest in and that Sensex at 22,000 is very much at play. And I say this with a couple of reasons. There is a whole set of worry due to some global factors, especially after central banks in developed countries throwing up their hands in the air and saying that monetary easing is simply just not working anymore. And then back home in India, our banking system is going from bad to worse and challenges are emerging from both sides of the balance sheet now. So the outlook is, I think, it is tough for the stock market and the market as a whole is a very tricky place to invest in. Caution and risk aversion is my watchword. In that context, we have been highlighting what I call ‘good and clean stocks’ for the last couple of years and I’ll take a couple of examples. A company such as, say Maruti Suzuki, is in our buy list for the best part of the last three years. I could add Ashok Leyland, which has also been in our buy list for last four years. I think, it was at ₹13 when we put a buy recommendation on it. Now, it is about ₹90-100. So, there are sensible places out there where you could invest, but you got to be cautious, got to be conservative and have to be patient because I think we are going to hit the rocks.

In an over-researched market like India, do you find enough multi-baggers?

The way Indian markets work is actually quite interesting. Every time you change the policy environment in India radically, as it happened, for example, in July 1991 or as it has happened in the last couple of years, it was followed by a period of rapid churn in the Indian market. My reckoning is a similar kind of churn has begun in the country. Several of the front-line market constituents are hurtling towards ignominy. What typically happens in such a period of market churn is midcap companies get propelled up. Midcap companies that can deal better with altered policies and institutional contexts are propelled upwards. It happened in the 1990s, slowed down in the early 2000s and it almost came to a halt in the second part of UPA-2. This whole churn, where market leaders get dislodged and smaller companies can get their pace in the sun, had been halted. But, it has begun again now in the last couple of years.

Given the low commodity and crude oil prices, what’s the outlook for India?

We have a lot of work to do if we are to benefit from this global disruption. We have to figure out how to channel our own savings into productive use. If we can’t do that, we will be a casualty of global correction because, at the moment, the bulk of the savings that drive the economy tend to come from abroad — FII flows is central to stock market and FDI is something we thirst for as domestic private sector is not willing to increase capex. The second challenge is the exchange rate. The rupee has become over-valued. I won’t be surprised if the rupee ends the year with a ‘7’ handled to it (or ₹70 per dollar).