Lower Re fails to deter FIIs; mkt stable on inflows: Dalal

The fall in the rupee has failed to significantly affect the market, as FIIs continue to invest undeterred by the fall in the currency, says Amit Dalal of Tata Investment.

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Speaking to CNBC-TV18, the analyst adds that he is not positive on the real estate sector on doubts whether the increased volumes being launched in the market will be picked by consumers. Below is an edited transcript of the interview on CNBC-TV18 Q: What is your view on Larsen and Toubro (L&T) and its quarterly earnings? How would you approach the stock now?
A: The earnings, which were below market expectations, especially the EBITDA margins, reflect the ground reality of the capex cycle in India and abroad. Though there is extra capacity of E&P and execution of capital-goods manufacturing, the pressure on margins to be earned overseas and in India has increased.
In India, there is the dual problem of companies unable to commit higher capex both because of their own balance sheets and also because of government clearances not being easily granted. So, the company’s earnings are nothing more than a reflection of the economic situation on the ground. However, the fact that the company declared a bonus indicates there is promise of better times ahead for the company. Q: What do you make of the downtick in the markets for the past three days? Do you think that the markets are in a significant mode of correction or will the bourse be able to sustain at the 6,000-6,200 range in the near term?
A: The market had an extended rally after it took off in April. The market closed weak in March and then the market rallied upwards which moved up to 6200 mainly on the back of change in the global markets. The Dow went above 15,000 which was most unexpected.
Inflation and interest rates were better than estimated. However, companies' ability to post satisfactory earnings was not clearly visible. The trend is still not secular and therefore the expectation that there will be a new high in May will be driven by liquidity. Q: How much of a negative impact does the rupee have on the markets?
A: Earlier, the market did react to the rupee due to its effect on FII flows. But currently, FII flows continue to maintain pace irrespective of the rupee-movements in the short-term. So I would not take the minor movements in the rupee-dollar into consideration. However, what is relevant for the market for the whole year is that the current account deficit (CAD) this year will be higher than last year at USD 100 billion which is a very large gap to be filled with capital flows. This rupee pressure will continue to remain. Q:  What exactly is affecting the real estate sector?
A: I am not very positive on real estate stocks chiefly because the increased volume that is being launched in the market in terms of new projects is based on high expectations of demand from the individual consumers. However, I doubt if this trend will continue or for companies to post higher growth going forward. Even a market leader like Godrej Properties is languishing. Q: Tomorrow, State Bank of India (SBI) is to announce its results and analysts expect a decline in PAT. What is your expectation?
A: It is not the PAT that investors should look at, but the value of stressed assets, increase in gross NPA, extent of provisions and coverage ratio. These are the four decisive items to look for when SBI declares results. Q: What is your outlook on Oracle Financial Services which went up on the day of its OFS?
A: It is one of those stocks which always had huge institutional appetite which was never been satisfied. These are companies which are unique and FIIs are always looking to add in such a supply situation. So, I am not surprised.