See Nifty at 6000-6100 by Mar, avoid midcaps: Vibhav Kapoor Though the Indian mar et has not been

performing very well, some analysts are be tting big on it. According to Vibhav Kapoor of IL&FS, the Nifty is li ely to be at 6000-6100 by March-end. He reasons that historically December is a positive m onth for equities and the Nifty could touch 5800 in the month if the fiscal clif f issue is resolved. "We have seen severe resistance at 5,800-5,700 levels earlier. So I thin it is going to be difficult for the mar et to push beyond that by end of December," Ka poor says in an interview to CNBC-TV18. He advises to avoid midcaps totally and remain cautious on equities. Adding that it is best to adopt buy on dips strategy for telecom, Kapoor feels that earnings grow th will remain supportive for mar et in FY14. Also read: Chec out: Prabhudas Lilladher's largecap and midcap pic s Below is the edited transcript of Kapoor's interview to CNBC-TV18. Q: How are you feeling about things after last wee ? It was stic y for the mar e t but are you getting the sense that there is still resilience in trade? A: Yes, there is some resilience but mar et is becoming a little bit nervous, pa rtly because of the global factors; the US fiscal cliff, the European situation, the Israel situation and partly because we are approaching a very crucial perio d in India with parliament session beginning sometime this wee . So, there is a lot of cautiousness in the mar et now compared to what it was a c ouple of months ago. However, we are still cautiously optimistic on the mar et g oing forward for the next six to twelve months.

A: Yes, that would definitely be ta en positively by global investors as well. N ormally, December is a bullish month. If you see in the last 13 years, I thin f or 12 years the mar et has gone up in December. That also is a factor which coul d push the mar et up provided ofcourse, we get some good news from the Indian st ory. Q: What is the range that you envisage for the mar et, in the sense how much can this mar et push for on the upside by the end of the year? A: We have seen severe resistance at 5,800-5,700 levels earlier. So I thin it i s going to be difficult for the mar et to push beyond that by end of December. O ur target for March end is somewhere around 6,000-6,100. However, if you are tal ing only of December, I thin there are two events which the mar et is going to loo for; the domestic event of the parliament session and the fiscal cliff in the US. If both of these turn out to be positive, then the mar et could push bac to 5,800 levels by end of December. _PAGEBREAK_ Q: The flows have dried up off late. What is the main concern that global invest ors have with respect to India? Is it the macro issues or is it anything else? D o you see a resumption of global flows anytime soon into India? A: Yes, I thin in the last two sessions particularly, we have seen a fair amoun

Q: If something positive comes out of this winter session, do you thin the mar et will rise higher despite what may happen globally?

t of selling in the futures and buying of put options by FIIs. This seems to sug gest that they are becoming a bit cautious. Part of the reason for that is the g lobal situation. The US mar ets really fell off quite sharply in the last two to three wee s. They are also cautious because there is a little bit of nervousnes s on the parliament session. Q: What do you read into the recent resurgence of the midcaps? Is that just the trading side eeping things alive or do you thin there is genuine interest and money is getting into the midcaps now? A: No I don t thin so. It is purely trading bets which traders would be ta ing. I d on t thin this is still the time to get into midcaps in a big way, because there ar e still a lot of things, a lot of ris s the economy is facing. A lot of things s till need to turn positive for the midcap as a segment to start showing sustaina ble bullish tendencies. Q: There seems to be greater assurance that there is limited downside ris for t he mar et at this point. Would you concur with that or do you thin there could be a sharp correction if the winter session doesn t go as planned? Or do you thin t here are some road bumps from the fiscal cliff issue as well? A: Yes, there could be some correction. However, I do thin that the bottom for the mar et has come higher than it was earlier. So, I don t see a very sharp decline happening. In the worst of situations, the levels that the mar et could reach a re 5,350-5,400. If you see in December last year, the mar et had touched about 4 ,500 and earnings have grown by about 12-14 percent during the year. So even if you just add that and to maintain the same low valuations that the mar et touche d in December last year, you would still be at a level of 5,200-5,300 or 5,400. So I don t see the mar et going below that 5,300-5,400 level. Q: How do you approach some of these new sectors that are emerging from the wood wor after nearly 5 years? Beverage counters, media stoc s, anything there to l oo at? A: Yes, we li e media now, given the changes that have happened on digitisation etc. That should help the sector in the medium-term and the long-term. However, one obviously needs to be careful about valuations because many times what does happen is that the mar et tends to discount the positive news well in advance an d then you have to wait for quite sometime to get returns. Q: What about the telecom space? How bullish would you be on that space in the n ear term? A: The mar et is beginning to discount future improvement in earnings pretty qui c ly. For example, we have seen a very sharp movement in Bharti to the extent of 10-12 percent in the last few days. So, what the mar et is really saying, is th at if the competitive intensities were to go down, the telecom companies will be able to raise their tariffs significantly from here. If Bharti, as an example w as to trade at a 15-16 PE, it would need something li e an EPS of Rs 20 to justi fy price of Rs 300 or Rs 320 where it is now. That is going to ta e some time. S o I thin there is initial euphoria. The sector is loo ing promising, but you ne ed to wait and buy on dips rather than chase prices going up. _PAGEBREAK_ Q: What is the best way to approach this mar et going into the next year? Is it still a grinding ind of stop-start move? Or are you feeling more confident that after five years this is loo ing li e a bull mar et trend and is going to move in that direction?

A: Well, the trend is definitely positive, but it is still better to be cautious because a lot of things on the ground still need to change as far as both the I ndian economy and the global economy is concerned. We still have road bloc s. Eu rope is still a problem, the overall global economic growth is still slowing dow n and it is not showing any signs of turning around. On the Indian side also, while the government is certainly now een to go for th e reform process and improve the pace of the economy, there are still a lot of r oadbloc s in terms of getting things off the ground. Therefore, you still need t o ta e a cautious view. Although, I thin it is probably right to be optimistic at this point of time. The mar et can move up by 12-15 percent even in these unc ertain situations over the next one year, given the fact that earnings have stil l been growing between 12-15 percent and are expected to grow by the same pace n ext year. Q: If you do believe that this mar et has the potential to grow about 10 percent between now and March, which are the stoc s that would assume leadership in thi s up move? A: It is a pretty stoc specific mar et. If you have an up move, probably most o f the large caps will ta e part. However, we are optimistic on some of the softw are stoc s for example, because we feel the rupee is going to remain comparative ly wea . Some of the rate sensitives and cyclicals would move up in anticipation of interest rate cut happening in January. So, automobiles would be a sector wh ich we would favour both two-wheelers and four-wheelers and maybe the private se ctor ban s would also be positive. Q: The one positive that we have seen this year is that many commodities are set to close this year in the negative with losses. How do you approach the commodi ty space now? Do you expect to see a big recovery in terms of earnings performan ce atleast on that commodity relief front? A: Well, right now the commodity sector obviously depends a lot on what happens globally and the global economy is still not turning around. So, I don t expect a bi g uptic in overall commodity prices going forward and therefore commodity stoc s are still going to be underperformers. You could get good trading opportunitie s if some of these stoc s really come down further. However, on a secular basis I thin it is still time to stay away from that sector. Q: In order of importance what do you thin would be the primary motivating fact or for the mar et? Will it remain global cues? Or does it come down to what happ ens or doesn t from government policy? Do you thin the RBI still has an important r ole to play for the mar et? A: All the three are important, no doubt, because we have seen that globally mar ets tend to move in the similar trend. They tend to top out and bottom out at a lmost the similar time frames depending on what happens globally. So, that is a very important factor. What happens in the US and Europe is important but equall y important is what happens to the Indian political and economic situation. The economy needs to show some more signs of turning around and interest rates is a very important component of that. So what the RBI does is going to be very impor tant. The whole process of project clearances going forward, how that happens an d reform processes; all these are going to be pretty important issues. So, all o f them are going to have an influence. Q: What is your base case assumption of what happens with respect to the fiscal cliff? President Obama has made comments that some sort of agreement will be rea ched with him and the Congress with respect to the budget deficit issues itself. What are you expecting?

A: They cannot afford not to have some sort of compromise or solution to this pr oblem. So, my base case would be that you would get some compromise which would avert the fiscal cliff, as it is called. However, even the compromise obviously is going to mean that there are going to be some tax increases. It could be divi dend tax, capital gains tax. All these are going to go up. Some cutting of expen diture would happen too. If some compromise comes through, it will be a very big relief for the mar ets obviously. You could see a good rally developing there. It is definitely going to have some sobering impact on the growth of the US econ omy. You would definitely expect to see a slower US economy in the first half of next year than we have seen recently. Q: What have you made of the move on the currency and the fact that the rupee ha s now moved bac to the 55 levels? Do you anticipate more wea ness there? A: I have been of the view that we are not going to see a very sharp appreciatio n in the rupee. A lot of people were expecting 48 and 50 levels simply because t he fundamentals of the rupee still remain relatively wea . Export growth is not happening and it is unli ely to accelerate in the near future, given the very we a global economy and high import growth. Therefore, the trade deficit is very, very high. We have seen FII flows of USD 18 billion this year. The Indian rupee is very much dependent upon what happens to the dollar globally and the ris on-ris off trade. So, as long as this huge trade account deficit continues, which I thin will for the foreseeable future, we do not see the rupe e really appreciating very significantly. The rupee will be at a level of about 53-56 for the next three to six months. Q: Would you change things around significantly, in terms of an investment appro ach in the next year? What you would split between equity, fixed income and gold ? Do you thin it is time to ma e a switch in that regard? A: The allocation to equities should definitely be increased gradually going for ward. If you get the time and if the mar et dips for some reason, you should def initely increase your allocation to equities. I also continue to li e bonds because we see interest rates coming down somewher e in the next one year and that should help the bond mar et. Therefore, while it may not be plausible to ta e 100 percent situation in equities or bonds, I thin it would be a good idea to gradually shift into equities but remain exposed to bonds for the time being.