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Jul 17, 2017 01:19 PM IST | Source: CNBC-TV18

Enam's Sivaram sees challenges for market in short term, earnings recovery from H2

Sridhar Sivaram of Enam Holdings sees interest rate transmission to reflect in earnings growth as well. He likes PSU banks and recommends having stock-specific approach among pharmaceuticals.

The Nifty looks set to reach a new milestone of 10,000 soon. Sridhar Sivaram, Investment Director, Enam Holdings shared his outlook with CNBC-TV18 on challenges in the short term, and why he is positive over the medium term.

“Earnings could recover in the second half of this year and next year as well. This is due to GST (goods and services tax) and interest rates transmission,” Sivaram said in an interview.

Elaborating on interest rate transmission, he said every 1 percent interest rate cut for companies results in an earnings growth of 10 percent. “If you add that to the 7-8 percent normalised earnings growth, you get 17-18 percent earnings growth,” he said.

So, what are the areas to be invested in? Sridhar is currently looking at cyclicals. “It could be construction, commodities, consumer durables, consumer discretionary and cement, among others. In some cases, it could even be capital goods,” he added.

However, he is not comfortable with non-banking financial companies (NBFCs) as well as microfinance institutions (MFIs). He explained that non-mortgaged exposures and business is the worrisome part in them. He is also wary of housing finance companies.

Among pharmaceuticals, he advised being stock-specific and having a bottom-up approach. From a structural standpoint, one has to be careful, he added. But, as a sector, he is not bullish on pharma and information technology.

So, what are his positive bets?

“We are positive on oil and gas. There are reforms on the retail side…prices are being adjusted and refining margins are reasonably steady. But on oil prices, we are not bullish and it could see downward pressure,” he added.

Among financials, he is broadly positive, barring NBFCs. Interest rates, he said, will come down as surprise on inflation might continue. There are some opportunities in PSU banks, Sridhar said, adding, a large part of NPA problem was announced. “We like how the NCLT process is going on and atleast the process is time-bound,” he told the channel. Having said that there are haircuts that institutions in the sector need to take going forward.

For entire interview, watch accompanying video.
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