Lack of bullish reforms to weigh down mkt: Angel Broking

The past few weeks has seen Indian equities struggling within a tight range, hoping and waiting for positive cues to give it the boost it needs. However, headwinds seem to be stacking up against the market now.

Weak monsoon, rising crude prices and a resurface of problems from Europe have got market men believing it is going to be a tough ride for the market. But there is still a ray of hope that the government will deliver some big-bang policy reforms. Rajen Shah of Angel Broking, however, isn’t too confident of the government taking confident steps or delivering bullish reforms. “I think the market is going to be lacking luster and it’s going to be more of a stock specific kind of market. It’s going to be just drifting down slowly to maybe below 17,000 or around 16,500 levels,” he said. Below is an edited transcript of his interview with Udayan Mukherjee and Mitali Mukherjee. Q: The monsoon situation has not gone down too well. What is your feeling of how it will progress from here and what kind of impact it would have on the market? A: Certainly monsoon has not been up to the mark. As per the last conversation with certain experts, indications are that it is down by about 20-25% across the country, so certainly it will have a disastrous impact. All the other factors are also negative except for the Presidential elections. Crude is back to USD 107-108 per barrel, rupee is about 55.50 a dollar or so, and European problems are also cropping up now. I had very clearly mentioned that the Prime Minister had flagged off a bull rally with salvo of positive statements, but if it fails to act then the market may drift down. That seems to be happening, it’s slowly drifting down. Post July 25, if the government takes some aggressive steps, then we can expect the market to again move up. But with the way things are moving on the political front I don’t think the government is in a position to take very aggressive steps and some bull reforms. So I think the market is going to be lacking luster and it’s going to be more of a stock specific kind of market. It’s going to be just drifting down slowly to maybe below 17,000 or around 16,500 levels. Q: What have been your principal disappointments on the earnings front? A: Bajaj Auto has not been up to the mark because of the issues they faced in Sri Lanka and even Hero Moto’s 10% kind of growth was not up to the mark. Bajaj Auto has disappointed and I think the stock is fairly priced around Rs 1,550-1,600 levels because in the best case scenario we are expecting about Rs 115-120 kind of earnings. So at about 13-14 times I would feel that Bajaj does not have much upside. I think they are going to disappoint on the guidance they had given at the start of the year. Even the days of Hero Moto actually now seems to be over as far as appreciation in the stock is concerned. I think that Hero too would report about maybe Rs 135 kind of earnings and at about 15 times I would not certainly look at the stock. I believe that Hero Honda may not provide you any kind of appreciation over the next few years. It will be like Colgate, which had a huge market share in 1994. The stock always used to quote at fancy PE multiples, but since the year Pepsodent was launched, there was a fierce battle for market share. We all know that Colgate didn’t deliver any kind of returns for the next 10 years except dividends. So I think Honda Motorcycle, which is the 100% arm of Honda Japan, is getting very aggressive in the motorcycle and the scooter business and I think it’s going to eat into Hero Moto’s market share. So I don’t see any kind of appreciation for many years to come.