Sensex may touch 30,000 by December-end

Entrepreneurs' decision to invest is based on expectations of profit and not on actual profit itself, which is why it is important for the government to revive sentiment, Nirmal Jain says.

May 12, 2014 11:11 IST | India Infoline News Service
Quick decisions to revive investment and growth will keep market sentiment high and lift the Sensex to about 30,000 by the end of the year, according to Nirmal Jain, chairman of India Infoline. Entrepreneurs' decision to invest is based on expectations of profit and not on actual profit itself, which is why it is important for the government to revive sentiment, he says. Edited excerpts from an interview with Palak Shah and R Sriram:

Markets believe the new government will be able to change things quickly.

If Modi just does initial few things right after coming to power, then further expectations will help markets rally. So the expectations could be a game-changer for the markets.

Entrepreneurial decisions to take up new projects or expansion initiatives are based on expectations of profit and not on actual profits. So if they expect the new government to be on a sound footing, then big corporate expenditure will get a push.

Today, corporates are just holding back their investments in projects. But it is a virtuous cycle and if the government can set the ball rolling, the rest will work out.

What do you expect him to do initially? Isn't there too much expectation from one man?

In a dismal state, things can change due to one man or one event. If history is anything to go by, then often one man has brought about lot of changes, be it Obama in the US or the chief of the central bank in Europe. There was no hope that the fall of the rupee will be arrested before Raghuram Rajan took charge as the RBI governor.

But, suddenly, the rupee recovered and stabilised. So what did one man do? Rajan just made a speech and took a few initial steps that were right. This changed the sentiment. Otherwise, there were talks of foreign selling taking the rupee to around 80 levels against the dollar.

So, one man with decisive leadership is very important. A push from the government for stalled projects in infrastructure and power sector could go a long way. A lot of cash is waiting to come into India as China is no longer a preferred destination for capital, given its internal problems.

What will happen to markets if the BJP does not get 225-230 seats?

If the NDA gets less than 225 seats, then the markets may correct but will not crash. But, if it falls short of 200 seats, then the markets will crash. The next finance minister, cabinet secretary and economic advisors markets will look at some of these important posts. Even foreign policies will be important.

Supposing, if the NDA is stuck at around 230 seats, then its alliance partners will have some ground to negotiate for the finance minister's portfolio and it would be a close call. On the other hand, a decisive mandate of above 270 seats to NDA will be very positive to sustain the flow of FII money and the market rally.

Do you see around $3-4 billion coming into India every month if we get a stable government?

Money will easily come even if some initial expectations are met. The emerging market pool of money is large and with China on the back seat, India is a preferred destination. Other emerging markets are small comparatively. After the dust settles on elections, markets will also look for monsoon and El Nino.

What is the Sensex target for the end of 2014 after a new government takes over?

In a positive scenario, the Sensex would move up to 30,000 by December end. FY15 will be a key year to watch out for corporate profits. Banking, capital goods, infrastructure, and power sectors will be chased.

Modi should find a way to disinvest as valuations would be good in euphoric times. Large investors should stick to large-cap stocks and small investors can buy selective mid-caps as it is a bottom-up market.

When do you see a turnaround in the broking industry?

The broking industry's turnaround is imminent. This year (FY15) itself can see a significant turnaround and it can sustain for five years if we go by the past cycles.

As far as we are concerned, broking is just 10% of our business and NBFC has a large pie. Our NBFC book size is around Rs 10,000 crore. I see a huge cyclical growth in broking and accelerated growth in NBFC business as well.

What about your banking aspirations?

RBI is clear they will give differentiated bank licence and commercial bank licence on tap. I feel by issuing two licences, the RBI was playing it safe on the eve of elections.

The RBI may soon come out with revised guidelines and framework on bank licences and it will be distributed virtually on tap. In such a scenario, we stand to gain a lot from our network of outlets and a balance-sheet size of Rs 12,000-crore plus.

We have some 2,000 branches, so we are well placed and we believe we will get a licence in the new policy regime. We will apply for an appropriate category. On-tap opportunity is where you can apply at your own pace rather than in a specified time line.

What is your outlook for the NBFC business? Where is the growth in this segment coming from?

NBFCs will see steady growth in the coming years. The mortgage and home loan segments will see huge growth. With the prospects of a rate cut and faster economic growth, home loan will improve.

More than half of ourRs 10,000-crore NBFC book is in the home loan segment. Wealth management is another key segment for us and we have assets under management of around Rs 55,000 crore.

Where is the retail broking segment headed?

Broking has moved from pure execution to an advisory business. In the last 10 years, the profile of customers has changed. Most customers who are now around 40 years of age preferred to invest on tips in their younger days.

But they are now studying every company. They ask fundamental and technical questions and want wellresearched stocks. Even the new generation is more educated and professional in its approach.

Earlier, you just had to find a broker to execute your trade, but now people are looking for sound advisory and not tips. Now, for execution, there are several apps that are very quick.

Companies focused on execution will not survive for too long as brokerage margins are under pressure. There will be some brokers but you really can't grow and make it big. Over time, stand-alone broking will be passe just like banks now cannot just survive as deposit-taking entities.

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