Investors will have to be extremely careful about what they are investing in. Some of the stocks that have fallen will surely become multibaggers in three to four year but that doesn’t hold true for every stock that has fallen, Jagannadham Thunuguntla, Senior VP and Head of Research (Wealth), Centrum Broking, said in an exclusive interview to Moneycontrol's Sunil Shankar Matkar.
Edited excerpts:
Q: The market has fallen sharply losing nearly 10 percent since the budget. Do you expect the Nifty to be back at 12,000 by the end of 2019 or will it remain in the 11,000 range?
A: The Indian market is going through a challenging phase, ranging from higher tax impact on foreign institutional investors, slowing economy, weak monsoon, not-so-exciting earnings season and implication of the US-China trade war. However, in the last 24-48 hours, the finance ministry’s consideration of rolling back some of the budgetary proposals has lifted the spirit. The market participants are eagerly waiting for the eventual announcements from the finance ministry.
Q: As many stocks have corrected 40-90 percent in the last four weeks, do you advise buying any stocks that could turn multibaggers in 2020?
A: It shows that bad times are a good time to invest. Investors will have to be extremely careful while investing in what they are investing. Some of the stocks which have fallen will surely become multibaggers in three-four years but that can't be said about every stock that has fallen.
Q: How do you read the US-China trade war after America threatened additional tariffs on Chinese goods that led to sharp depreciation of yuan?
A: The US-China trade war has been lingering on beyond everybody's expectations. By now, the trade war should have had an outcome. As the trade war didn't lead to a desired outcome, China had no other option but to depreciate its currency yuan to make its exports competitive. It's a tit-for-tat-for-tit-for-tat kind of situation between the US and China. I think the resolution of the trade war is critical to the global economy, else there will be an imminent threat of global recession.
There are enough data-points in terms of trade volumes suggesting that the global economy is going through a slowdown. The global economy is not in recession at the moment but if the trade war doesn't get resolved soon, the global economy will surely be staring at a recession. As US presidential elections are in November 2020, (Donald) Trump can be expected to remain aggressive through his tweets.
Q: What is your take on the RBI policy and what are the challenges? Is a rate cut by the central bank enough to revive sentiment?
A: The RBI MPC (monetary policy committee) has cut the repo rate by 35 basis points (bps), taking the repo rate to a nine-year low and the total rate cut in the last one year to 110 bps. Despite the rate cut, the challenge has always been that banks are not transmitting the rate cuts to the borrowers. Hence, the desired outcome of economic revival is not taking place despite RBI's rate cuts.
Out of the RBI's 75 bps cut done prior to recent meeting, only 29 bps has been transmitted to the borrowers by banks, according to RBI governor Shaktikanta Das. Because of lack of transmission, the economic activity is not getting stimulated. Till the time the transmission aspect is not addressed clearly and emphatically, the economy won’t witness a revival.
Q: The June quarter earnings season, so far, has been tepid. Most analysts said there could be more downgrades than upgrades. What is your analysis? Do you expect subdued earnings in September as well?
A: Corporate earnings have been a major worry for the past five years. The current quarter is presenting some interesting developments. The BFSI (banking and financial services) stocks have been doing well. Over the previous two-three years, banks have been aggressively into balance-sheet cleaning that is why profit scores of most of the banks were low during that time-frame.
In this quarter, as a result of that initiative, banks have shown strong growth in profitability due to low-base effect. But except the banking sector, the stocks in the other sectors have been languishing, reflected in their weak top-lines, volumes, revenues, profit margins, etc reflecting the impact of a slowing economy.
Q: Many banks reported an increase in asset quality concerns in June quarter also. Do you expect that to end by the September quarter?
A: The repercussion of IL&FS default in August 2018 has led to defaults by many other corporates across sectors because the financial eco-system is inter-related. As a result, banks’ asset quality worries have increased, triggering the worry that the Indian banking system may have to deal with a new NPA (non-performing assets) cycle. Banks have painstakingly cleaned up their balance sheets over the last two-three years to address all the previous NPA issues. Fortunately, that clean-up act by banks has started yielding results.
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