Mar 20, 2013, 07.21 PM IST | Source: CNBC-TV18

Expect limited market downside ahead: Birla Sun Life

Mahesh Patil of Birla Sun Life AMC, says that he does not expect any more downsides from the current levels as many events were already known.

Mahesh Patil

Co-Chief Investment Officer

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Mahesh Patil of Birla Sun Life AMC, says that he does not expect any more downsides from the current levels. However, he feels the market will remain range-bound.

"There is a big divergence between the quality and cyclicals. So, going ahead there will be valuation support and that should protect the market from slipping down," he told CNBC-TV18.

Also read: See Nifty rangebound between 5700-5750 levels: IIFL

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

Q: Today, in the market we are at the lowest point of the year and the pulled got sold very easily. Would you be worried about the trend in the market as now we are headed southwards now?

A: In the recent past, we saw the political instability again unfolding. It was expected somewhere down the line as we moved closer to the polls. Two-three months were very critical from an economics standpoint as one was expecting many project clearances, which is very important to revive the economy especially when growth is petering down. It has shaken a bit. So, in that context we need to reclibrate and see in terms of earnings growth for next year.

I do not see big downsides from these levels as many of these things were known but probably some got pre-poned by some time. The RBI policy expectation of interest rate cuts has not been materialized in terms of coming year.

In the past too, Corporate India also did not benefit from interest rate cut so the transmission of cut in interest rate has not been benefited companies in lower interest rates. Considering all these factors, I think the market will remain range bound as we saw some decent correction and attractive valuations. It is a big divergence between the quality and the cyclicals. So somewhere down the line there will be valuation support and that should protect the market from going down.

Q: It looks like lot of across the board selling has taken place this afternoon mainly because of the political situation. The uncertainty with regards to happenings on DMK front which could possibly derail the economic reform process, which the most market participants are talking about and secondly, the approved Food Security Bill which is possibly populist in nature going forward ahead of the elections. Are you worried about the macroeconomic indicators completely spiralling out of control in FY14?

A: The market is expecting some of these measures to unfold as we move forward. As we move towards the elections these populist measures are likely to gather much importance. 

On the other side, strong actions by the government to revive the economy was needed so that revenue is boosted on the revenue side. On the cost side it is bound to increase going forward. At the ministry level and centre, we are getting a feeling that there is urgency at the government because lots of measures do not require political support. 

Current government coordination within various ministries can clear a lot of projects which are there on the ground. So, if government takes some concrete actions in the next few weeks then it should really be encouraging and market should take a positive signal from that.

Q: Do you think that the sentiment of the market is more tarnished as opposed to the fundamentals of the market being tarnished? Cobra post exposé hurt private banks, for example ICICI Bank is below Rs 1,000 levels that we have not seen all the way since October, followed by political uncertainty and development on Bharti Airtel. Do you think that the sentiment is more impacted as opposed to the fundamentals for the market?

A: I don’t think fundamentals have really changed dramatically in terms of market correction in last couple of weeks. Essentially, sentiments got impacted at a time when there is no meaningful action seen on the ground level to support the recovery. 

So I think PE derating is happened. I do not think earnings will get significantly impacted even for the banking stocks. I do not think it would materially impact the earnings numbers for next year. Sentiments are clearly at the lowest point currently. The global environment is also pretty benign. It is more of our domestic issues which are really impacting and I would expect if there is even one single positive step taken by the government that should really be pretty good for the market, because it is in a pretty oversold zone at this point in time.

Q: In terms of the banking space, in terms of asset quality trends, do you see a lot of worsening? We have seen incremental evidence coming in from the likes of the real estate space indicating that there could be a cash flow crunch going forward etc. Would you be more worried about private banks also coming under asset quality stress?

A: Some asset quality concerns are resurfacing. A quarter back there was feeling that the asset quality issues are bottoming out. Sequentially, one was not expecting any further decline in terms of loan loss provisions, but looking at the trend in terms of where the economy is heading and also the fact that interest rate cuts what one was expecting, given these two factors I think there could be some more pain in terms of asset quality and that is probably impacting the financial of the banking stocks at this point in time.

 

Q Expense Ratio is not of utmost importance for:
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