Earnings are going to be a major driver for the market. The Sensex
could touch 30,000 soon if earnings continue to pick up, says Sashi Krishnan, Chief Information Officer, Birla Sun Life Insurance.
He is postive on the market in the long-term as he sees a lot of overseas flows continue into India. But there could be a positive effect if the US Federal Reserve raises rates faster than expectation.
He is positive on the oil and gas sector and slightly underweight on the IT sector after defensive IT sector commentary.
The second quarter results may be under pressure for corporate banks, says Krishnan.Below is the transcript of Sashi Krishnan’s interview to Nigel D’souza and Reema Tendulkar on CNBC-TV18. Nigel: Before we move forward, we have had some breaking news that came in on Indraprastha Gas (IGL). You have been positive on the oil and gas space on Oil Marketing Companies (OMC) as well. Tell us what kind of an upside do we see from here? What is the rationale behind that? A:
We have been positive on the oil and gas space for quite some time, but specifically for the oil marketing space and the gas space and the gas distribution space, specifically. In terms of the oil marketing space, one is that we are seeing a lot of reforms that have happened in this sector where the price increases and decreases and now gets passed on. It is market driven and that is very positive news for this sector. You are seeing a slow shift across the world from oil based fuels to gas based fuels. That is a trend that you will see in the Indian context also and given that we would be very positive in this particular area. Reema: How are you feeling about the markets per se? We have been waiting for a correction since Budget day, that has not happened. Valuations are higher than their historical averages. What is keeping the market afloat and how are you seeing the way forward? How do you feel about it now? A:
Directionally, we are very positive on the market. But we do think that there could be a lot of interim volatility because of earnings season, because of global factors and things like that. But directionally, we do think that the markets are going to move up and the big driver for this market is going to be earnings. And if you look at this quarter earnings, we do believe that you should reach double digit earnings for the Nifty
and primarily, it could be a little specific to a set of sectors, but we do think that on an overall basis, you should see a double digit earnings growth with revenue being somewhere around 4-5 percent revenue growth, but margins still improving by 100-120 basis points. So, that would set the stage for a second half recovery in earnings and we would expect a full year earnings growth to be something like around 14 percent. So, that s going to be one big trigger for the market. Reema: And where would that take the Nifty and the Sensex according to you with this kind of an earnings growth? A:
So, directionally, we do think that you should see the Nifty somewhere close to around Rs 30,000 if the earnings trajectory keeps the direction we think it is going to take. But, if you do see a lot of other positive triggers, for example, you have got, US election coming up, you have got both the Fed and the Bank of England and the European banks to decide on what their stand on monetary policy would be and if that continues to be easy, then you could see a lot of overseas money also coming back into India which could be another big driver because there are two things that drive markets. One is liquidity and the other is earnings expectations. And if we do believe earnings expectations is on track to a 14 percent growth for the year and if liquidity adds to it, then there is no reason why we should not see markets at a higher level than this. Nigel: Let us scratch upon a couple of points, you are expecting a 14 percent earnings growth this year. I remember at the start of this fiscal, there was a lot of talk of around 20 percent growth. Now what is the downside risk to that 14 percent and also your view on the IT space? We have got a couple of weak results coming in from the erstwhile heavyweights that are Tata Consultancy Services (TCS) as well Infosys. Is it time to get in or stand out? A:
First you take the IT space. The commentary has been very defensive and though the quarter results have not been bad, the commentary seems to suggest that as we go into the next two quarters, they will see some pressure on it. We are also hearing commentary saying that there is pricing pressure at this point of time. So, obviously, from a portfolio perspective, we are equal weight on the IT sector to slightly underweight primarily because we think we will still have single digit growth for the next 2-3 quarters.
If you look at it from what are the dangers to this market or what could derail these upmoves that we are seeing in markets, one clearly will be the fact that if the earnings expectations does not pan out the way we are expecting it to pan out in the next two quarters, it could be a little bit of a shock to the market. And the other is, obviously global factors. I do not think we really have much control over some of those factors. And if for example, the Fed decides to go in for a faster tightening, it could lead to some amount of foreign investor sentiment changing and some money going out, because if you look at the last couple of weeks, you are actually seeing domestic investors being fairly large inflows into market and foreign investors have actually been taking out some money from this market. Reema: So, earnings will be the biggest driver as well as perhaps the biggest risk for our market rally as well. Very quickly, corporate banks, do you believe they are at the start of a rerating given what is happening with deleveraging? A:
We have started to change our view a little bit on corporate lenders primarily because we are seeing, especially after the Essar Oil resolution, a lot of progress happening in that area. And we think that it is time for us to start looking back at corporate banks though I do believe that this quarter results may be still under pressure because though the slippages may actually drop, the provisioning may marginally increase. But if we see resolution happening, we would like to start relooking at our view on corporate lenders.