Three themes that can make big money for you in markets: Saurabh Mukherjea

NEW DELHI: Without painting any over-optimistic picture about the Indian market, Saurabh Mukherjea, Ambit Capital, said that double-digit earnings growth is still some quarters away. The upside for the market is likely to remain capped around 29,500 level by the end of 2016, he said in an interview with ETNow.

The weakness in capex and investment side of the economy, the dire state of PSU banks and the credit quality issues with the large banks will continue to drag earnings, Mukherjea said.

"I do not think there is a big lift from earnings because of the drag on the capex side, but what is clear is that a certain part of the economy --
especially the consumer-centric part and the consumer credit part -- is on a fairly strong wicket," he said. He pegged the Sensex target for the year end at 29,500.

Mukherjea highlighted three themes that can make big money for retail investors over a longer time frame.

Big opportunity for private lenders: There is a gradual decline of the public sector banks and a big opportunity is emerging for the private sector lenders -- whether banks or non-banking financial companies (NBFCs).

"There is a real burgeoning of consumer credit, SME credit, and the whole loan against property market and my reckoning is that we are in the early stages of a consumer credit boom," Mukherjea said.

Although most of the PSU banks made progress in resolving the bad loan mess at the end of June quarter, but the pain is far from over. The rate of increase in bad loans of public sector banks (PSBs) fell sequentially in June quarter after increasing in each of the previous three-quarters, an ETIG analysis shows.

The median gross non-performing asset ratio (GNPA) for the listed PSBs stood at 11.01 per cent for the quarter ended June 30, 2016. Though it increased by 161 basis points sequentially, the jump in the ratio during the previous quarter was even higher at 235 basis points.

Consumption sector in for big boom: The second story that is playing out nicely is the squeeze applied by the government on black money, which is bad news for the jewellery sector and for the residential real estate sector, but good news for aspirational consumption.

"Building materials, high-end cars, aspirational consumption seem to be on a fairly strong wicket. I think we got two to three years of steady rise in consumer spend especially on expensive items," Mukherjea said.

"We have a pretty high degree of certainty is on the aspirational consumption space, the shift from black to white space. As for the boom in smaller lenders, I think there is a high degree of visibility there and we are confident that the earnings will come through," he said.

The boom in road sector: The third story that is playing out is the gradual decline of Indian railways on a cargo perspective and a boom in the road sector. In an attempt to boost freight revenues, the Railway Board earlier this week rationalised coal tariff by changing the distance slabs, which is likely to fuel inflation and dent margins of cement as well as power companies. As a result, the freight rates will increase by up to 19 per cent.

"I think there is a big success story in trucks as the Indian Railways sheds market share in the cargo sector, there is clearly an uptrend towards more expensive cars," Mukherjea said.

Maruti Suzuki is nicely playing that uptrend towards more expensive cars. The global investment bank, CLSA raised its 12-month target price on Maruti to 5,850 from Rs 5,000 earlier.

Mukherjea thinks that even two-wheeler makers can also score big because India is a small car hub and a small bike hub which is going to find its place in the world. Even tyre companies are also very good example of capital allocation over a decadal period.

"I think for this (road) sector, demand drivers are in place, if you find sensible capital allocators in the sector put it in your portfolio and sit tight for a decade, you will make a lot of money," he said.