Though the market has performed well in the last couple of months, there is still potential upside from a medium to long term perspective, says Mahesh Patil, co-CIO, Birla Sun Life Asset Management Company.
Talking to CNBC-TV18, he says that from a near term perspective, the markets chould consolidate at current levels. Talking about the earnings season, he says they were much in line, as the expectations were already low.
Here is the edited transcript of his interview with CNBC-TV18
Q: It has been a really smooth run for the markets in the past couple of months – buoyed by liquidity. Do you expect this run to continue and do you see our markets get to the life-time highs which were talked about so much a couple of weeks ago?
A: We have seen the earnings season gone through I think. The numbers have been pretty balanced. We have seen some downgrades to earnings and some companies have surprised on the positive side.
By and large, next year as we move into FY14 initial estimates consensus is around 13-14 percent kind of a growth. We would expect growth to be somewhere around 11-12 percent – slightly lower than what the market is expecting.
Having seen the market run-up recently because of global liquidity, our expectation in the beginning of the year was that market would probably be in-line with the earnings growth because the valuations are pretty much at the long-term average.
While we have crossed probably halfway distance through that I think there is still potential upside from a medium to long term perspective but from a near term perspective we think markets should consolidate at these current levels.
Q: In terms of what you have seen in terms of the numbers in the past couple of days – considering the fag end of earnings season. What would you rate earnings season like in Q4 vis-à-vis Q3 – better or worse?
A: The expectations were already low, so, in that context I would say it was probably much in-line. If you look at last Q3 numbers you were looking at upgrades and downgrades were actually kind of balancing out. So, there was expectation that at least in Q4 you will see that breaking out and that is what our underlying belief was.
However we have seen some more companies disappointing in Q4 that what we were expecting.
So, I would say on balance the numbers were slightly lower than what expectations were and now is the time really when you will see the numbers being set for FY14 and that will be key really whether we are again - because last two years we have seen earnings growth in single digit and low single digit.
Whether we touch double digit is something which we will see once analysts start to update their numbers for FY14.
Q: What is the view on State Bank of India (SBI) now? The bank reported a big disappointment this quarter. The stock has not seen any kind of recovery. In general how would you be positioned there?
A: On PSU banks we have been a bit cautious. The growth recovery has been pretty slow and gradual. Asset quality concerns continue to persists. In that context if you look at lot of the PSU banks they have surprised negatively on the asset quality.
We feel that the pain is not behind us and you might see slightly more pain in FY14. So, given that aspect we would be slightly cautious on PSU banks.
Bond yields have corrected quite a bit. So, that would lead to some gain in the Available for Sale (AFS) book and that should help the banks to be able to adjust in terms of the non-performing assets (NPAs) but net-net I would say that still probably another one or two quarters where you would see the NPA cycle bottoming out and valuations clearly in their favour.
So, somewhere down the line these are banks where you would see the rerating happening and then one can take a positive view on these from a medium to long term perspective.
Q: Would you have a view in terms of a sectoral play for the markets if incase you are assuming an upside from these current levels?
A: At this point of time we are positive on the rate sensitives. We have seen interest rates coming off. Banking and financials is one area where we are positive especially on the private sector banks.
We have seen those banks coming with steady numbers. The best way to play rate sensitives would be probably the consumer discretionary space where we have seen some slowdown last year, but we see momentum again coming back as we move forward into this fiscal year.
So, auto's is one sector where we are turning a bit positive though we haven’t seen any meaningful uptick in volume numbers.
Our belief is that some of these companies are exhibiting decent margins and with pricing power remaining we should see good earnings growth coming back in FY14.
Auto ancillaries where some of the companies which are supplying to one of the leading major domestically as well as overseas is where we see strong performance coming in next year.