Q1 nos to be broadly inline with expectations: SBI MF

Sanjay Sinha, CIO, SBI Mutual Fund, said the uncertainties in the market have not gone yet. "Inflation remains a big concern. It would cross double digits. The question is how long it will last. High input prices are also likely to impact margins going forward. We can see more downside if Q1 results are not inline with expectations. Politics and liquidity flows will be other factors to watch out for."

On Q1 earnings, Sinha said, it will be the silver lining. "The market is taking cues from the advance tax numbers. FII flows can turn positive if earnings growth supports the market. Q1 results are likely to be broadly inline with the expectations."

Excerpts from CNBC-TV18’s exclusive interview with Sanjay Sinha and Sudarshan Sukhani:

Q: Can we look for slightly higher levels or is the market still on uncertain ground?

Sinha: All the uncertainties that were there in the market have not gone as yet, because the biggest uncertainty before the market right now is the level of inflation. We are still in a territory where the full impact of the fuel price hike has not come out in the Wholesale Price Index. The market has braced itself to a reality that we might see double-digit inflation. That is not the uncertainty.

The uncertainty is whether we are going to be in a double-digit inflation scenario for a long period of time or will that be a very small phase which will last beyond a few weeks. The market has to take stock of that. If we continue in a long phase of very high inflation, then there could be some scope for correction. But if that phase is not long, then we should be in fairly clear ground.

Q: Do you think we are in a tight rangebound market or do you feel there is downside in the near term? 

Sinha: At this current point of time, the downside to the market would come from two sources. One would be structural, which would be caused by the inflation being very high and not just being high. What would be the factors that would keep inflation high? That would be strong commodity and crude prices, which would therefore end up impacting margins of companies. Therefore, earnings for the next few quarters may not be so good. If that sort of a scenario is something, which I would call as structural reason for the market to come down, the other reason for the market to fall would probably be events, and there are not too many of them right now, before we get into the result season in July.

As of now, expectations of results in July are relatively subdued because one had a quarter full of high commodity prices and interest rates. If the results do surprise us on the upside, then there is scope on the markets to move up. But if not, then may be there could be some downside as a result of that event. The other significant event, which could bring the market down, could be politics because we still have the nuclear treaty out in the open for discussion and ratification.

If there is something in terms of political ranting on that issue, that could be a negative. But other then these two issues, the other issue, which could have an impact on markets, could be liquidity.

FIIs have been fairly strong sellers in the markets this year with more than USD 5.5 billion worth of selling which has been very well absorbed by domestic institutions ‑ a mix of mutual funds and insurance companies. On that count, I don’t have too many worries as to whether liquidity would be a factor, which would bring the market down. But structural and event-based issues could be.