Best of earnings season behind us: Prabhudas Lilladher

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Ajay Bodke of Prabhudas Lilladher tells CNBC-TV18 that the best of the earnings season is probably over, and that the results due to be released could see some strain. "Earnings from construction, power, infrastructure and metals could see some pressure," he said.

According to him, the strong performers were banks, the IT space and autos, and they have already delivered. Therefore, he warns that it could be a tricky week.

On the brighter side, the increase in foreign inflows is something Bodke sees as heartening news for the market. "Talks that a further billion dollar is expected to be allocated by one of the large sovereign wealth fund based in the gulf is good for the market," he said.

Talking about the monetary policy meet tomorrow, Bodke says that he expects status quo in the current policy. "We are not expecting any change in either the repo rate or CRR," he said.

Below is an edited transcript of his interview with Udayan Mukherjee. Also watch the accompanying video.

Q: What are you expecting in terms of reaction for Reliance today?

A: I think the amount of buyback has impressed the market participants and Rs 870 would prove to be a price quite attractive from market perspective. The underperformance would be a thing of the past. The only point of worry essentially is the steep fall in the refining margins and expectations that the margins will continue to remain lackluster for a quarter or two.

Also, the company has provided no clarity on when the gas production will come back from the fall that we have witnessed over the last few quarters. So I think the management ought to provide some sort of clarity on the gas front. I think that would have been an additional second booster in addition to the large buyback the company has announced.

Q: This is going to be a tricky week for earnings because we have started seeing the weak earnings coming starting with Reliance. Do you think the market will be able to digest any negative surprises this week?

A: I think we have seen more or less the best behind us. I think a fortnight back I had mentioned that the automobile sector, the information technology sector and the private sector banks will be strong performers, and more or less they have turned out to be on the mark. But now as we go forward, we could see pressure on earnings from construction, power, infrastructure and metals.

I think these are the sectors where one will have to see what kind of cost efficiencies some of these companies have been able to bring about because there will be pressure on topline, the order inflow scenario will continue to be grim for the construction and infrastructure companies and I think their debt levels, their working capital management also will be closely watched. In our interaction with some of these companies, the management has indicated that the debt levels have gone up sharply and there is pressure from interest perspective. So it will be very tricky week and its also truncated week

At the same time what is heartening is a billion dollars of inflows from FII front and talks that a further billion dollar is expected to be allocated by one of the large sovereign wealth fund based in the gulf. Since mutual funds have not been as aggressive buyers as the FIIs, I think this is very heartening news from the market perspective.

Q: What are you expecting to see in terms of the policy tomorrow and how do you see the Bank Nifty moving as that's been the sharpest mover over the last few days?

A: We are expecting status quo in the current policy, we are not expecting any change in either the repo rate or CRR. The core inflation is what the RBI is watching and unless there is some sort of easing in the core inflation front I don't think the RBI would be willing to look at any measures in terms of lowering rates. But as we go forward, maybe in the next quarter that is April to June, we will be seeing RBI looking at easing rates. Over a 12 month period, we expect RBI to drop rates by around 100-150 bps.

So far as the Bank Nifty is concerned, we will have to look at some of the results from the public sector banks which are yet to come. Although banks would be beneficiaries in case of falling rate environment, our interactions with the CDR cell and some of the large public sector banks indicate that the problem with the asset quality still remains. In fact, in October to December quarter, there is a fresh accretion of roughly Rs 20,000 crore on the front of restructured assets and roughly around 90% of that is accepted for restructuring. The expectation is that for the current quarter, that is the January-March quarter, and for the April-June quarter, the accretion should more or less be inline with what one has seen in the October-December quarter.

So we are looking at fairly large numbers of problem assets coming to the CDR cell for restructuring and some of the sectors like road construction and infrastructure are yet to come for restructuring and to that extent the public sector banking space will continue to show some pressure for the current quarter as well as the following one-two quarters. So that makes us cautious on the public sector banking space.