See downside risk to '09 earning forecast: Religare Aegon

A: It is a welcome relief for most market participants. The market traded in fairly narrow bands today. It has been a highly volatile market for the last one or two weeks. This kind of rangebound market is essential for people to start finding their bearings.

Even for those who are looking for some shares that offer value, it is easier to take those decisions when one sees stable market conditions, as opposed to markets, which are darting up or down 4-5% every day. So, it is a welcome relief and everybody should be a little pleased with the way the markets have behaved over the last few days, particularly because it has been so resilient in the face of what otherwise would have been negative news.

Q: Are you getting the sense that there is a base building formation happening right now or is it too early to call that?

A: Those calls are always a little tricky to say in terms of whether it is forming a base or not. But I am definitely encouraged in terms of the kind of behaviour we have seen over the last 4-5 trading days. It is giving some indication that there is some amount of buying interest starting to come in. It is definitely reassuring but it is very early to take a call whether the kind of sell off that we have seen over the last 7-8 weeks has reached some kind of a climax and the market is now set to head up a little bit again.

Q: How do you think we will come out of July? Crude is volatile and there are expectations that it will cool down. There are three weeks of earnings culminating in the monetary policy meeting. Where do you think we will stand at the end of this month?

A: There is reason to be optimistic because this month will go fairly well and given the backdrop of a completely miserable June. People are very negative about the earnings season this month. Everyone is concerned about what the RBI will do. We may perhaps have more bad news in store for us maybe a quarter or two down the road. A lot of near term concerns have already been discounted in the price.

So, this might go fairly well and one might see the market try to rally up through the remainder of this month. 

Q: Where is this buying and nibbling most concentrated? Is it the sectors that are fallen the most like the rate sensitives or somewhere else?

A: It is hard to discern a specific trend. Individual stocks are at least starting to exhibit a little bit of bounce but on a sectoral level. The trends are not clear as yet at this point in time.

People have seen some value emerge at this kind of differential behaviour. That is going to be the story going forward over the course of the next one or two years. We have been used to a very top-down model during this market for the last 2-4 years and that has been a great time to look at the market from a top-down perspective.

But the next year or two will perhaps be a time where you will have to look at things more from a bottom-up company perspective rather than look at the top-down macro, because the top-down macro unfortunately does not look nice at all.   

Q: In terms of earnings, what do you expect to see for the rest of 2008 starting with this quarter? Do you think this quarter is okay? Would it keep slipping with every passing quarter or can’t you see that far?

A: If you break up the earnings numbers and look at it, the risk to the market is that the analysts’ consensus builds on a ‘back to business as usual’ in the second half of 2009. At a 20-24% earnings growth number for 2010, they expect all the problems the economy is facing to completely vanish by the time you get into FY10.

That is a slightly hasty presumption to make at this point. So, there definitely is a downside to these earning forecasts and there is scope for a lot of disappointment in the second half of 2009.