Though the auto sector is under a lot of pressure, revival of rural demand and election spending will spur consumption and boost auto stocks, says Mahesh Patil of Birla Sun Life Asset Management.
In an interview to CNBC-TV18, Patil adds that the trend of lower gold imports would be confirmed only after examining the data for July and August. With IndusInd Bank to open the earnings season by declaration of results on Wednesday, Patil says that PSU banks with focus on corporate lending may announce poor earnings due to delay in the expected economic recovery.
Below is the edited transcript of the interview on CNBC-TV18
Q: You have a positive bias on the auto sector which is reeling under pressure due to strikes, fall in sales and limp economic growth. Is this an opportunity to enter auto stocks?
A: It is common knowledge that the auto sector is under pressure. But as the fiscal progresses, rural demand should pickup and as election spending begins, it could also spur consumption. So, I think the second half of the fiscal could be slightly better in terms of volumes and any cut in interest rates should be positive for this sector.
Bear in mind, the valuations in the sector are reasonable and most of the companies generate good returns. So looking at the valuations and slight recovery in the volume-growth, we are positive. We are also positive on the auto ancillary segment primarily due to benefits from the domestic market but also from better export opportunities given the depreciating rupee.
Q: What is your view of the Jet-Etihad deal?
A: I would not want to comment on any specific deals. But at this point in time, I would like to say that the Indian government has to really stand up and meet its commitments especially at times when higher FDI inflows are essential to reduce the adverse impact of the current account deficit (CAD). I think the deal needs to be quickly resolved and send a strong, positive signal to foreign investors.
Q: The earnings season officially kicks off on Wednesday with IndusInd Bank's declaration of results. What is your expectation from bank-sector's earnings this time around?
A: We expect private sector banks with retail focus to declare strong results. Regarding the declaration of results by PSU banks, investors need to check the status of restructured assets. Though we thought the worst of restructuring or NPAs was over last quarter, the economic recovery this quarter has been bit delayed which has led to pressure on corporate sector. This could adversely impact some of the banks, especially those with focus on corporate lending.
Q: Do you expect the fall in gold imports seen in June to continue?
A: The data is a pleasant surprise after high levels of imports in April and May. So I would look at import-levels in July and August to confirm any stability in gold imports. Clearly, the curbs on gold imports have had some impact in curtailing demand along with catalysing speculative demand. But in the long-term, gold is not an ideal choice of investment. The moderation should definitely help contain the CAD going forward.