Mkt consolidating, downside unlikely: Prabhudas Lilladher

Below is the edited transcript of Sandip Sabharwal’s interview with CNBC-TV18.

Q: Does the market relative underperformance in the past few days worry you? Are you getting a sense that the valuation catch up is over and now it is going to be difficult to go higher?

A: What is happening is that market had a sharp run up and it is consolidating now. So for a long period of time we actually saw India outperform the other global markets. India did not correct when some of the other markets were correcting because the news flow out of the Government on the policy front continue to be positive. So I think it is just a phase of consolidation. I don't see a big downturn coming through.

The results of the Q2 are expected to be mixed. I don’t see too much of downgrades happening. Infact, we might see some upgrades happening through the earning cycle. As that happens we will see the markets again beginning to move up. The cash position among domestic investors and domestic funds still continues to be high. The cash positions are still high although India has got reasonable allocation this year. But overall cash allocations still continue to be pretty high. We should see resumption in global equity markets up move and India will also participate in that.

Q: How exactly do you read the numbers of Axis Bank, HCL Tech and Reliance?

A: I think results have been pretty divergent. Like Infosys disappointed again but HCL Tech did well in terms of profitability, though it disappointed in terms of revenue growth.

The top line of most of the IT companies clearly seems to be under pressure. The key is, given the US Presidential elections are coming through and the race is so close, we could see a deferment of budgets as far as IT spending goes in US corporations for sometime.

It might not happen at the same time like what people were expecting. That will impact the near term growth of these companies. For IT companies what we also have to see is that the rupee actually appreciated only in September. The impact of the rupee appreciation on profitability will be felt from this quarter and next quarter. One could see a squeeze in margins for some of these companies. So I would be slightly vary of IT as a space at this stage.

Private sector banks have continued to show positive results despite the kind of problems the economy is facing and the kind of inflow we see in the Corporate Debt Restructuring cell or the accretion of Non-performing assets.

To that extent, the space is well positioned. So both private sector banks as well as private sector Non-bank financial companies should do well and they should be actually leading the next wave of the rally.

Q: If the market is faced with a 5.9 percent expectation on fiscal deficit do you think that there could be profit taking in January or even earlier?

A: The entire fiscal deficit story and how it will actually impact the markets is something which has already been factored into the markets. The probability that the Government will exceed its fiscal deficit target is very clear. Indirect tax collection figures which have come through despite the excise and service tax are not very clear. The economy is in a slowdown mode at this point of time. But I have recently started seeing that some brokerages have started upgrading their expectations for next year GDP growth that is something which is happening.

There are two factors- global & domestic. Globally economic data out of the US continues to surprise on the upside. The European issue seems to be controlled at this stage and we won't see a shock coming from there anytime soon. The US dollar is actually falling significantly. Technically the US dollar index is positioned in a manner where we could see one more move of downswing in that Index. If that happens, flows into risky assets will come in. India will get its share of money as the global markets rally. The next move as it starts should take the markets to at least 6,100 to 6,200 levels. December-January could be the time frame when we could see those levels.