India Inc Q1 inline; avoid BHEL, buy HUL: Raamdeo Agrawal

He also said the ongoing first quarter earnings of India Inc are on track so far, but, Agrawal rued, his company's bottomline have disappointed sequentially.

Speaking of public sector banks, Agrawal said stress on their assets is clearly visible. However, he expects the negatives to have been priced in. Specifically talking about stocks, he advised investors to stay away from BHEL as the company's orderflow reamins weak. Tata Steel also will find it tough going ahead owing to troubles in Europe.

However, HUL is a buy at current valuations and IT as a sector has visible growth prospects.

Below is the edited transcript of his interview with CNBC-TV18.

Q: What is your view on this earning season in general, happy or subdued?

A: More or less in line, we expected 8-9% aggregate growth. Few surprises always are there but on the whole earnings are on track.

Q: How has the quarter been for Motilal Oswal and what have been the key disappointments this quarter around?

A: In the Q4 our earnings was Rs 24-25 crore whereas in this quarter it is Rs 20 crore. We expected that there could be an uptrend in the market continuing from Q4 but it fell back to the low of last year of the first quarter. Compared to last year we had almost flattish bottom-line. But sequential quarter has been depressing.

Q: Is retail or HNI participation just not picking up despite markets not going down significantly below 5000 Nifty?

A: No, this is the biggest. Though asset class wise the equities have done best this year but people are still hesitant about allocating, the fear is total and despite performance and non-performance of real estate or gold, I think fixed deposits and fixed income are the most attractive asset class compared to equities.

Q: What is topping your worry list now? Is it monsoon deficiency or no policy reforms coming from New Delhi after Presidential elections?

A: I was always very doubtful about policy reforms coming post Presidential elections. Very little is happening on that front and I don't have much expectations. I would rather focus more on quarterly results which are underway and maybe tomorrow’s interest rates policy action.

Q: Do you think anything can come tomorrow? Inflation is high. Monsoons are bad. Crude has gone back to USD 107 again. Why would the RBI cut rates?

A: Going by their public stance and hard facts on the ground about the inflation and lack of initiative from Delhi to contain the deficit, my own expectation is very low. I think that in the next 12-18 months interest rates will be significantly lower but for that to happen there has to be a story.

Maybe the growth needs to be completely slum, complete give away of tax collection, because inflation is just relenting to go down and now with low monsoon showers the pressure on prices will be higher. It's not a very conducive environment for very deep cut in the same, but they may respond by releasing more liquidity by CRR or 0.25% cut, but expectations are very low.

Q: Few weeks back when crude touched USD 89 per barrel, we thought our fiscal problem is getting resolved but with talks about global risk-on, quantitative easing (QE), crude is back to USD 107 per barrel and we have seen no pass through, are you worried on that front?

A: It is not conducive to have challenging external environment. We have to do put our acts together like setting right policies, removing blockages, resolve investment pipeline, and have non bureaucratic and judicious policies.

We cannot control external environment, when crude is at USD 89 per barrel we are celebrating and again it is USD 107 per barrel so it is almost a one-man army against the current government policies where they are sitting silent, whether crude is USD 150 or USD 50 per barrel, the policy remains same.

 In this type of environment it is very tough to extrapolate anything because even global markets are not easy. In one month oil can fall 30% and then get back almost 20%. It is a very unpredictable, very confusing environment and even more confusing is no policy action from New Delhi. It is difficult to predict at this juncture.

Q: What do your view on public sector banks? Last week there was a real scare in the market when the asset quality picture started unfolding. Do you think we are now beginning to see the ugliness of the NPL cycle this time around?

A: The stress on the assets is very clearly visible. PSU banks have a wide network and all type of coprorates and SMEs get loans from them. In this result, the quality difference between private and public sector bank is clearly visible.

Clearly, public sector banks are under major stress in terms of the quantum of NPA which they are declaring. Of course there is some recovery from the earlier NPAs but net-net it is looking bad. In some sectors like power and telecom projects which are still under construction, they have not been capitalized in the books of companies, so they cannot be NPA in the books of banks.

So people are scared that if these projects have to go on-stream and in losses they will never be able to repay the loans and underlying interest. So the underlying book is looking even worse. This scare is already there in the price. PNB is available at 0.8 times book with Rs 5,000 crore profits.