"Banks are at the peak of their health in terms of asset quality and in a tight monetary environment continue to flourish. Credit expansion theme seems to be continuing and the earnings have been spectacular," Sonam Srivastava, Founder at Wright Research told Moneycontrol in an interview.
The quantitative investment management & trading professional with more than nine years of experience likes the private banking space right now lead by ICICI Bank and HDFC Bank as the budget favours credit expansion in the economy while not offering any capitalization to PSU banks.
After Q3 earnings season, Sonam says the management commentary is the key in this earnings season as the numbers are hovering around the expectations.
A cautiously optimistic stance across sectors looks like the most prudent outlook now, she says. Edited excerpts:
Adani Group stocks have been witnessing huge volatility for over a couple of weeks after the Hindenburg report. Do you expect more correction in stock prices or is there any value buying now?
It is really tough to speculate on the prices of the Adani group stocks. The corporate governance against them are quite serious and are still not flouted completely, and history has shown that stocks suffering from corporate governance issues can get into trouble.
On the other hand if the short seller's allegations stay unproven the stocks might inch up. The situation is incredible in magnitude of the allegations, price movements and consequences and I don't think many including me would be able to speculate here. I would suggest people stay away from these counters by the virtue to extreme risk though.
Do you really feel Budget 2023 was the greatest budget ever from the government? Also, were there any disappointments?
This was a much appreciated budget for sure. The FM reinforced the India growth story and our commitment to continue on the growth path. The big announcements were a 33 percent increase in Capex, which was beyond estimates and was welcomed as the much required driver to make India the manufacturing and services hub for the world and to booth internal consumption and job creation.
What was also quite a relief was that the government did not turn full welfare mode before the elections and instead kept the focus on fiscal prudence.
The implications of the tax regime changes are also being widely debated as they might not have a large impact on the middle-class tax payer in the long run.
Do you think the market is less bothered about FOMC outcomes now and focussing on slowdown?
The FOMC stance has not turned dovish but the market for sure is discounting it. If you look at the price action in US stocks and bonds you can see that the market is in fact pricing in a rate cut at this point in time.
FOMC chairman said that the deflationary forces have come into effect and this cheered the market into thinking that they might avoid recession and actually see the soft landing. But the tightened monetary is here to stay atleast through 2023 and the delayed effect of the rate hikes might also start propping up soon. The market is concerned about the slowdown and rightly so.
Which are 2 best themes, you think that the Union Budget has given?
The most significant announcement in the budget was an increase in total capital investment outlay by 33 percent to Rs 10 lakh crore, making effective capex Rs 13.7 lakh crore, forming 4.5 percent of GDP. This is far above our expectations of 3.5 percent and should boost the infrastructure, capital foods, cement, logistics and railways. This is a clear indication for the emergence of the theme of domestic cyclical recovery and boost for the infrastructure linked sectors.
The second strong theme is the persistence by the government to prop up the new industries in India. The government has vowed to increase the ease of doing business and to clean up compliances. They have incentivized the emerging sectors in India like mobile phone manufacturing, white goods, speciality chemicals and metals. This would make India a beneficiary of the China+1 incentive.
What is your call on quarterly as well as nine-month earnings announced so far?
The IT sector has not performed well, but there is optimism in the market for industries such as cement, capital goods, and railways. IT, and pharmaceuticals sectors are seeing a resurgence of sentiment as well. The financial sector will continue to post the best numbers but the outlook has become more cautious, because of profit booking as well as the fear of exposure to Adani debt turning bad. Margins are seen to expand during the quarter, but the demand growth is subdued. We are seeing the consumption sector do well with discretionary sector taking a bigger lead and rural demand continuing to struggle.
Any thoughts on the management commentaries and their outlook for next quarter and next financial year?
The management commentary is the key in this earnings season as the numbers are hovering around the expectations. The IT sector commentary has been mixed with some optimism, decision-making delay among foreign clients has been highlighted. Financial sectors and banks continue to project earnings momentum growing.
Consumption sector has also maintained a cautiously optimistic stand with a focus on expanding margins and being agile.
Sectors like metals, chemicals, cement are seeing a contraction of earnings but with rising global demand continue to be optimistic. A cautiously optimistic stance across sectors looks like the most prudent outlook now.
Are you worried about banks now given the recent fall or is it a great opportunity to pick quality names? Any names on your radar?
Banks are at the peak of their health in terms of asset quality and in a tight monetary environment continue to flourish. Credit expansion theme seems to be continuing and the earnings have been spectacular.
SBI beat all estimates to post 68 percent earnings growth. However there is a sense of caution for the banks as investors worry about the Adani debt exposure on their books.
I like the private banking space right now lead by ICICI Bank and HDFC Bank as the budget favours credit expansion in the economy while not offering any capitalization to PSU banks.
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