Mkt to be calm in Oct; oil, IT to see better Q2 nos: Kotak

Unlike other market experts, Kotak Institutional Equities does not expect much volatility in the market in October given the absence of key triggers. Senior executive, director and co-head, Sanjeev Prasad feels that lack of external pressures and domestic catalyst will keep the market calm this month.

Political rhetoric will continue to be high and there will be no real policy initiative from the government, he tells CNBC-TV18 in an interview. He further added that government expenditure may not be cut severely due to the polls. He sees more pain for banks and expects them to report losses going ahead. Information technology (IT) and oil and gas stocks like ONGC, Oil India, RIL are expected to deliver better results this time.
Also read: Sept scored with EM revival; global news key in Oct: Udayan Below is the edited transcript of his interview to CNBC-TV18. Q: How are you feeling about the market in October? All the exuberance of September is still to last or waning? A: It is going to be a quiet month as we don’t have any external pressures now. Clearly, it looks like tapering is off for the next three-six months. We have the US government shut down and debt ceiling issues now. The US Fed is not going to act in a hurry, neither the new governor whenever she resumes; it is going to be the Janet Yellen over there. It will be another two months after that before the US Fed starts taking call on the tapering programme. Domestically, I don’t see any news, good or bad for the time being. Other than the result season, there is no real catalyst for the market. You will not see any real policy initiative from the government. Political rhetoric will continue to be high. So, it is going to be pretty lackluster quarter. We haven’t done our numbers as yet on the results. September 30 was just yesterday. IT will continue to do very well, year-on-year (Y-o-Y) numbers will be very strong in rupee terms. Even if you look at dollar terms or in constant currency will have somewhere about 3-5 percent Q-o-Q growth for most of the largecap names, which is a pretty decent quarter compared to June. The rupee depreciation followed through in terms of margins and net profits would be pretty strong. That is one sector will do well in October just looking at the numbers over there. Contrary to that, banking sector is hard to clear out what is happening to NPLs. This is the first quarter where you could start seeing some challenges on the balance sheets of the banks. Many of the larger infrastructure companies are in serious trouble. There is a lot of restructuring behind the scenes. How long can some of these private banks continue to dodge the bullets? We will have to wait and see. You would start seeing some bad numbers on the banking sector soon if not in September then maybe in the December quarter. Consumers are going to be a bad quarter on volumes. Having said that, the stocks continue holding up for whatever reasons. Metals will be fine, pharmaceuticals will be fine, energy surprisingly will have a very good quarter. Oil and Natural Gas Corporation (ONGC), Oil India Ltd (OIL), Reliance Industries Ltd (RIL) all will have fantastic quarters assuming that the government continues with the subsidy share of USD 56 per barrel. Crude prices have gone up and rupee has substantially weakened both Q-o-Q and Y-o-Y terms about 12 percent. So that should support the numbers for the upstream oil companies at least for ONGC and OIL and RIL because rupee depreciation will have a reasonably good quarter. It is going to be mix bag. Stocks which benefit from a weaker rupee, they will do well and in terms of the earnings numbers reported in this quarter and the domestic cyclical names are going to have a reasonably bad quarter. _PAGEBREAK_ Q: How are you feeling about flows in October? What do you guys hear about exchange traded fund (ETF) interest or whether there is some redemption pressure after this performance through September? What do you expect to see on the money format? A: I don’t think this is going to be the month where you are going to see too much of inflows/outflows. Looks like, rupee is reaching some level of stability, somewhere between 62/USD and 63/USD it is going to halt. Sometime, you will see some positive news coming off the FCNR inflows. So that should probably keep the rupee range bound for some time. If that is the case, I don’t see any reason why you should see suddenly a reversal of outflows or reversal of inflows which we saw in September. I suspect you are not going to see too much of inflows or outflows on net basis as far as this particular month is concerned. Unless and until you see some very surprising numbers in the quarterly results. For example, if some of the IT companies -- you could see some amount of selling over there. It probably should not be the case looking at whatever things were picking up on that sector or if you see suddenly some disappointment in the consumer space, for private sector banks which are heavily over-owned by the FIIs, then you could start seeing some amount of a disappointment over there. Maybe, people finally are starting to take some profits off the table as far as the consumer and private bank space is concerned. So, other than that, I don’t see why the investor should be reacting too violently to either the external environment or the internal newsflows.