C Jayaram, Joint Managing Director of Kotak Mahindra Bank is bullish on telecom sector and beleives that private sectors bank though safe bets will not see much upside form here.
Telecom stocks which were beaten severely earlier are likely to see upside from here and although private bank counters remains safe bet, they may not see much upside from here, believes, C Jayaram, Joint Managing Director, Kotak Mahindra Bank.
“You are starting to see more sanity in that space and yesterday’s regulatory announcement in terms of roaming rates, etc. added to that positivity. So I think that’s a sector where by and large the worse seems to be over,” Jayaram said. He believes that even without any sort of intervention from government, the sector would start to look better over the next few months.
Private bank on the other hand despite being strong bets will remain range-bound due to stagnant monetary policy of Reserve Bank of India. Jayaram said that rupee played key role in June monetary policy. He expects quantitative easing to taper down only by December.
Below is the verbatim transcript of his interview:
Q: What have you made of the several moving parts that have changed significantly over the past few weeks because of the rupee depreciation? In the first place, how is your earnings growth trajectory? Do you think there will be downward revisions to the earning growth trajectory because of the rupee?
A: I think the clear sort of a big differentiator has been the currency. Clearly, on the back of the weakening currency, the Reserve Bank sort of did what it had to do, which was not to change anything. I think in a sense, that changes the dynamics because if you went back three-four weeks, the expectation was that there would be certainly a reduction this time around and a gradually declining interest rate scenario. Some of that has got dramatically changed thanks to the currency. So I think in a sense that’s the sort of key parameter on which markets and economy are currently predicated. When you talk about earnings, I am not so sure that anything dramatic has happened again in the last month or so. I think we stick to our basic prognosis which is that by and large, the bottoming out has happened. To that extent, it is unlikely that across the board, you will actually sort of see any dramatic decrease in earnings as we go forward.
Q: All eyes are going to be on the Fed outcome. Even if we buy some time for ourselves or the global markets buy some time, we do not get quantitative easing (QE) tapering perhaps in June or not even in July but it is coming. It could come maybe in September or December. In a scenario of Fed tapering its QE3, how is India likely to perform with respect to flows?
A: From a market perspective, by and large, the fact that QE reduction is going to happen, sometime you can choose. Currently, consensus seems to be around December 2013 but somewhere in the window between October 2013 and May 2014, you are sort of starting to see pretty much the end of QE. So I think that has got factored into markets. In terms of flows into India, I am not so sure that it will significantly defer based on that parameter. I think what will be probably more important is what happens in the Indian context in terms of what we do with policies.
Q: What would be the sectors you would play for? Almost everyone is talking about the fact that markets will remain terribly ranged so clearly it’s a stock pickers market. Nevertheless, what would be the sectors that you would think should do well at this juncture? Would you stick with the pharma and IT because of the rupee play?
A: It’s a very difficult time to be looking at across the board sector picks because clearly you don’t have too many triggers right now. I think the next set of triggers can really come either if there is a policy decision on the part of the government or indeed if elections are announced at some point of time. So to that extent, sector picks across the board would be difficult. Having said that, clearly, with a weakening currency, IT looks interesting. I think telecom looks interesting at this point of time because it had been a beaten down sector for a number of reasons, but I think you are starting to see more sanity in that space and yesterday’s regulatory announcement in terms of roaming rates, etc. added to that positivity. So I think that’s a sector where by and large, the worse seems to be over and even without any sort of intervention, you can actually start to see that looking a little better over the next few months.
Q: When we had spoken to you last time, you said that apart from telecom, you also like private banks. What’s the view on the private banks because off late, we have seen some profit taking in most of the private banks?
A: In terms of private banks, the mood has shifted little bit in the last couple of months for couple of reasons. One obviously is your entire sort of view on interest rates. Like I said, a couple of months back, the view clearly was that for the rest of the year you are going to see declines in interest rates, people were talking about anything between 75-100 basis points. All of that has now got tempered down, primarily thanks to currency. So I think that’s certainly something which will impact the private banks. The other of course is that the slowdown in the economy continues and to that extent, credit off take, etc will be a challenge as you move forward. So I think private banks continue to be safe place but given the valuation set which many of the private banks are, I can’t see too much of upside there.
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