Oct 11, 2012, 01.24 PM | Source: CNBC-TV18
Second quarter earnings are unlikely to bring any good tide to the Indian market. Growth has been tepid this quarter while companies struggled to beat the recessionary pangs.
Arvind Sanger (more)
Founder & Managing Partner, Geosphere Capital Management | Capital Expertise: Equity - Fundamental
Not so positive on India Arvind Sanger, Geosphere Capital Management is concerned about the problems looming large at the Indian economy.
In an interview to CNBC-TV18, he said that "If the euphoria does continue to wear off both in India and on a global basis there is no reason you couldn't get in India (particularly for us looking from an overseas investor) another maybe 3-4 percent weakness in the currency and another 5-6 percent weakness in the market."
Sanger adds that second quarter earnings will continue to remain sluggish while moderate improvement is expected only in December. He is expecting for a meaningful upturn in earnings in the next calendar year as implementation of reforms will be key driver of further upside.
According to him, S&P downgrade still remains a risk factor for Indian markets.
Below is the verbatim transcript of the interview
Q: What is your take on what you have seen on the global screen for the last few days? Do you think there is an air of correction in global markets now?
A: It clearly looks like the markets are taking a breather, not just in India but in global markets too. A little bit of it is some of the massive rally we have had on a risk-on mode on a global basis, a little bit of a correction on that. But, some of it is India specific because the dominant news in India over the last few weeks leading up to this week has been about all the actions being taken by the Finance Minister to implement long awaited reforms.
Also, the news flow in the last few days has started to switch back to the claims of a scandal on the part of the corruption kind of watchdogs, some of the third party or independent people who have been raising the flag on that. That again raises concerns, whether or not the government is going to get little derailed on its agenda as well as how many more skeletons might keep coming out of the closet which might create impediments to decision making.
Q: What could be the extent of a pullback if we indeed get one in the month of October?
A: If the euphoria does continue to wear off both in India and on a global basis, there is no reason you couldn't get in India another maybe 3-4 percent weakness in the currency and 5-6 percent weakness in the market.
So, basically in the US dollar terms, you would look at it as you could easily get a further 10 percent correction without any meaningful major risk off in the global markets or any major disaster in Indian political situation in terms of government falling or any such significant issue which would be a much bigger deal.
I am just talking about the normal course of if this correction continues. I am not saying that is the central case, but that is certainly one of the probable cases.
Q: Earnings season has not begun very well in the US. What do you expect to see through this earnings season from an Indian perspective? What impact may it have on stock prices?
A: I am not sure we watch the earnings on a macro basis to tell whether earnings are going to be down overall for the markets, up 5 percent or up 10 percent or wherein single digits the overall earnings would be. But when we look at many of the companies that we track, clearly earnings will continue to be sluggish. The estimates have come down sufficiently to where I am not sure there is going to be massive negative surprises. But risks to earnings are more on a moderate negative surprise and a moderate positive surprise, because nothing that has happened in the last few weeks is at all going to be helpful for what happened in the September quarter earnings.
So, whether this is the low point in earnings or whether earnings continue to stay sluggish in the December quarter, I think the jury is out. My sense is that this could be the low point in earnings growth and we may see some very moderate improvement in December. We are kind of in the trough phase and hopefully moving a little bit ahead of it in the next quarter.
Q: If you do believe that earnings are close to bottoming out now, by when do you expect an upturn?
A: For an meaningful upturn in earnings, we would have to wait till calendar 2013 and either the March or June quarter, by which point you could get some of the business confidence coming back. If the RBI does something on the rate front, that could help some consumer confidence.
Some of those things could earnings to benefit from a better economic environment. But I don't think anything meaningful is likely till March quarter at the earliest.