QE tapering to strain banks; exports robust: Motilal Oswal

Presenting his outlook on the current market scenario Raamdeo Agarwal, joint MD of Motilal Oswal Securities fears havoc in private sector financials once the tapering of the monthly bond buying programme by the US central bank starts. If talks of QE tapering in September have rattled them (financials), the effect of complete withdrawal of the programme will be the challenge, Agarwal told CNBC-TV18.

Currently, banks have been stressed due to concerns on asset quality. Lack of loan growth and worst level of non performing assets (NPAs) have impacted them, he adds.

However, he is positive on export-oriented businesses. He cites the example of pharma companies, which are looking to better their growth and margins due to the rupee's fall. Meanwhile, Tata Steel expanding its margins domestically due to the decline in the rupee. He also sees good recovery in two-wheeler companies too.

Also read: I am positive on India: Rakesh Jhunjhunwala

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

Q: You have spoken to the best in India Inc. Are you getting a sense of serious despondency? Do you think we may end the current year with actually contraction of earnings?

A: It is too early to say about contraction of earnings because we just had three-four rounds. One of the things which is coming out is that still the loan growth or stress in the bank book is not elevating.

We are at the worst level of NPA cycle and whether it is going to become worse or it is going to stay here for some more time. One of the things is that there is no elevation from the very high pressure points.

Export orientation is looking to be a robust idea; the margin expansion is visible in export-oriented companies particularly pharma companies. So they are becoming far more ambitious in terms of their growth rates, margin, and return ratios. These are things which are two contrasts.

Banking is looking very cautious, exports are looking little aggressive. So it is a mixed thing right now but as we go and see more of them we will realize whether things can really be taken care of.

Q: Did the import substitution guys give you any positive cues because imports fall faster when the rupee depreciates?

A: It is too early. We just had two-three speakers. At least in the conference, it has not come out. We will see little more presentations and then may be by end of evening we will have more flavours of import substitution, export promotion or outright capital flows, NPA cycles, all the things will come out by evening.

Q: What is your call on the private sector financials as that has broken market's back?

A: One of the thoughts was that if Quantitative Easing (QE) has brought so much of prosperity in last decade and even thought of tapering has rattled the entire financial markets, what would happen when actually the tapering leads to complete withdrawal and eventually may be even a quantitative tightening.

That is extreme. But if you are talking about longer term, this tapering has to go on to complete withdraw of QE, that will be the intention of the central bankers which may happen in three-five years. But what would be the challenges and how Indian financials are going to swim through this particular channel.