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As a class, emerging market equities, after a long run of 10
years, are not losing attractiveness in relation to developed
market equities
Can look at buying IT stocks if they
correct 10-15%: Vibhav Kapoor, IL&FS
READ MORE ON YES | Vibhav Kapoor | US immigration bill | US economy | the rest | Telecom | stocks
In an interview with ET Now, Vibhav
Kapoor, Group Chief Investment Officer,
IL&FS, shares his views on Indian equities
and some sectors. Excerpts:
ET Now: These are dark days for the
Indian markets and it has been a one
way street for Indian equities.
Vibhav Kapoor: Yes, indeed these are
dark days and they have been building up
for a long time, owing to the bad news,
both domestically and fears on the
international front. The current trend is a
sort of accumulation of all that has
happened over the last one-and-a-half
years.
ET Now: In the near term if we were to
crack below the 5500 mark, how much more capitulation could it lead to?
Vibhav Kapoor: It is difficult to judge what levels the markets can go down to because
there are still a lot of uncertainties, both on the domestic as well as on the international
front. Moreover, on the international side, we do not know when Ben Bernanke would
actually start reducing QE3 and what sort of impact it has on emerging market equities.
Undoubtedly, India is doing bad and it has its own problems, but as a class, emerging
market equities, after a long run of 10 years, are not losing attractiveness in relation to
developed market equities and that can have major ramifications over the next six to nine
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months. However, there can still be significant downside.
ET Now: Just about everything in the infrastructure space is broken down, PSU
banks are trading below their book, key capital good stocks are trading at single
digit PE multiples. Do you think it is too late to get bearish now?
Vibhav Kapoor: The question is how far they can go down and are the valuations,
which are looking cheap today, really cheap? We do not know how they will come
through over the next 12 to 18 months. Moreover, every year, analysts start with
estimates of 13-14% growth, but the CAGR of earnings growth for the last five years is
only 7%. In the current year, about six months ago, people were looking at 13-14%
growth for FY14 and it is already down to 6-8%. Therefore, what looks cheap may not
really be cheap.
ET Now: With the market now correcting with such velocity, do you think the
sectors which have been holding up until now will fall in line with the rest of the
market or will this outperformance continue?
Vibhav Kapoor: There are four such sectors - FMCG, telecom to some extent, IT and
pharma. Two of these - pharma and IT - have been going up largely because they are
immune to the Indian economy and they gain by rupee depreciation. Whereas the other
two - telecom and FMCG - are not immune to the Indian economy, but have been doing
well because that segment of the economy has not yet got impacted.
Therefore, the first segment to be impacted if things continue to worsen would be
FMCG, where the valuations are very high. I do not see any reason why consumption
will continue to gain at the pace it has been, if there are no investments and the
economy continues to slow down significantly. On the other hand, telecom is coming out
through a bad patch and probably can continue to perform reasonably well over the next
few years.
The IT and pharma sectors are going to do well because the US economy is doing better
and the rupee continues to depreciate. However, at some point, valuations, particularly in
the IT sector, will put a cap on how far these stocks can go and you could see some
decent corrections. That would be a good time to get into these stocks if you get a
10-15% correction. Of course, the immigration bill in the US could be an overhang for IT,
which would need to be watched carefully.
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i think if it is seen significance of economy < error value at 5 % level then it is favorable for
buying of IT stocks , otherwise > error value could be rejected
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