Market to rise gradually, time of tear-away rally is over: Mahantesh Sabarad, SBI Cap

Talking to ET Now, Mahantesh Sabarad, SBI Cap Securities, says indices will be moving very gradually at a very slow pace over a period of time because the outlook for equities right in India is very positive

Edited excerpts:


You believe that there will not be a tearaway rally in the markets going forward and that markets will be high with intervening dips. Does that mean that the kind of rally that we have seen in the first half of 2017, a huge spike way past the 9700 level -- that is going to likely to pause and breathe and are we going to see consolidation going forward?

Yes, in a way I am suggesting that there will be a consolidation but when we say consolidation, very often the markets participants confuse it with a very flattish kind of market. That is not what we are expecting, we are expecting a positive bias to the markets so you will have indices moving very gradually at a very slow pace over a period of time because the outlook for equities right in India is very positive.

There are actually a handful of negative triggers out there in the future. Most of the triggers are positive. So you have GST implemented now, you have low fiscal deficit, you have low inflation possibility of RBI reducing interest rates, NPA resolutions on the card and so on so forth.

As far as negative news is concerned, probably geopolitical risk is the biggest one of them so therefore when you have more positive triggers and positive triggers outweighing the negative triggers you will have a market which will gradually rise and not really be a tearaway kind of rally because mind you valuations are not cheap like what we saw in December last year, for example.

Tell us a little bit more about this entire M&A spree that we are currently seeing on Dalal Street and let us start off with the telecom sector first. Tatas and the Bharti Group aree looking at a possible alliance. However, there is no confirmation of that yet. This is just a source based news but what according to you is in it for the shareholders who already have had a taste of consolidation? You have got Idea and Vodafone on one hand and then of course you have got the big boy Reliance Jio as well. Do you think the might of Tatas and Bharti put together could compete with these two giants?

No, I am not really sure whether than can really pave the way for Airtel who is actually one of the big leaders in telecom to really get an advantage over the other players. The Idea-Vodafone was a big merger and that brings in when the eventual merger really happens brings in a lot in terms of market presence, not in terms of market share.

An Indicom Tata Airtel alliance does not really bring that in terms of share market presence. What perhaps it tries to do is that the small bits of strategic gaps that each one of them had, primarily Bharti Airtel has certain strategic gaps which would be plugged with an Indicom business alliance that they will have.

To me, it does not seem to be a very large merger. The largest of them all was the Vodafone-Idea merger that was announced a few months back.

Interestingly one of your picks is IT, you are bullish on large IT companies and that at a time when margins are no longer in that 26-28% range, they have flipped off. All the IT firms have lowered their guidance. What makes you bullish on large IT firms?

I do understand that the margins of the heydays are no longer there.The growth rates of the past are no longer there but the valuations are also not of the past. Today we have an Infosys available at a forward earnings basis somewhere between 13 to 14 multiples. You take any estimates. When you have a growth which is of the order of 9% plus or minus a few points and a possibility, that 9% will be upgraded to probably 11% somewhere down the line, you start finding a company like Infosys attractive, okay.

This does not go into the Infy alone the large cap IT names are headed towards possibly upgrading their guidance a few months down the line as the outlook haze clears out. So to us the IT therefore from a valuation perspective becomes very attractive, we are not chasing growth in IT. We are chasing low valuations and the large cap IT names have the low valuations that I am referring to.

Therefore we will also not look at the small IT names, most of the small IT names business model is such that they are dependent on really rupee depreciating for them to be in the reckoning. Today we do not find rupee depreciating in a big manner ahead and therefore small IT names is not something in our radar.

What do you think will be the synergies between IDFC Group and Shriram Group, if indeed they do get merged?

This is a good merger primarily for IDFC because it is a new bank struggling to grow, struggling to compete with the other set of private sector banks and therefore it requires a step up in terms of getting its market presence out there so this seems to be quite a decent move from IDFC’s perspective. This is not the end of IDFC’s strategies. They will need to grow much bigger than this in the next years to come and therefore probably another three-four years down the line we might see another M&A activity from IDFC provided this merger goes in through smoothly and the growth happens so to us IDFC will typically grow through the inorganic route over the next four five years.