Macros to be under pressure for 3-6 mths: Mangal Keshav

JP Sinha of Mangal Keshav said it would be very difficult to talk about market outlook in the near-term. There are clearly headwinds emanating from domestic macro situation and the global arena.

Oil prices are expected to go higher. And in the next three to six months, the macro situation doesn't look like it's going to get better from the current levels.

So in all, headwinds are very many, the credit crisis is as yet an unfinished agenda in the US markets, sentiments are weakened, so pressure is going to stay on markets as well, he said.

Excerpts from CNBC-TV18's exclusive interview with JP Sinha:

Q: How do you read the situation for the next week?

A: It’s difficult to talk about next week, but business sentiments are down; our discussion with some of the corporate suggests that there are headwinds emanating mostly from the macro situations, domestically as well as globally.

Oil prices are still at a high level and in all probability are expected to go higher from the current levels of USD 145 per barrel which will further have its own dent. So the situation is coming from the global side, from the domestic macro situation and when we look at futures, we find that at least for the next three to six months, the macro situations don't look better from the current level and may normalise or moderate going forward and that doesn’t augur quite well for the overall market.

So I would say that pressure continues, headwinds are very many and every alternate day one hears that some or the other companies are coming up against the credit crisis which started almost a year ago. So that unfinished agenda in US markets is having its own toll on the markets as well. So the concerns continue, the sentiments are weakened and to that extent there’s going to be pressure on the market as well.

Q: What would you do with an Axis Bank? Numbers looks good, but the stock came off yesterday; your take on Axis and generally private banks?

A: The numbers were very good and this is one of the banks, which has demonstrated much more than what the industry is growing at and second would be HDFC Bank. So in that respect, both the headline numbers, have all done pretty well. Margins were slightly under pressure, which was well expected. Having said that, we are looking at around Rs 300 of book value by 2010 on the adjusted level and the stock is already at around 2.1 times. We look at is 2.5 times book value so there is some headroom.

The macro issues today are playing much larger role than the micro individual companies. Despite good results, there was some amount of profit booking. But despite the challenges, it still shows good earnings growth for next two years and so to that extent this is an opportunity to get into the stock.

Q: What about the power space? We did see some sporadic moves up in stocks like NTPC, Reliance Infrastructure; even L&T did not do too badly. Are you a buyer in that space now?

A: To a larger extent yes.  We look at companies having a strong cash flow for the next few quarters, if not for years. We see if their balance sheet is still unleveraged and if the company has a track record.  We are particularly looking to get into largecaps despite the fact that prices have come off a quite a bit.

In case of NTPC, valuations appear to be on our side, so we do recommend. The others would be difficult to take a call on; we look at cash flows closely before recommending anything. So I am not sure of how the cash flow would augur in these cases.

Q: Any thoughts on aviation as a space and this deal that’s just being announced between SpiceJet and WL Ross & Co?

A: The aviation sector we would like to avoid. On the recent deal between Spicejet and WL Ross, I think it’s too early to come and talk on that because firstly the overall sector is bleeding. Secondly, this kind of money is going to lift possibly for sometime but it is not getting into any kind of consolidation or likes of that. Yes, it is only deferring the worst that could happen to the industry. So to that extent it’s only a deferrment, which is coming at this point in time if the crude continues above USD 145-150 per barrel. So unless we see crude coming down, it would be difficult to look at this segment.

Add to that the passenger load factor; the passenger growth is coming down and the load factor is shifting from one set of operator to another set of operators. So it is quite difficult to take a call on this segment at this point in time when the outlook is not very good.

Disclosure:

I don't hold any of the stocks/sectors discussed.