Banking FY16's theme; orderbook improvement needed: Ambit

Below is the verbatim transcript of Andrew Holland's interview with Sonia Shenoy & Anuj Singhal on CNBC-TV18.

Sonia: This week was much better than last with the index seeing a cool three percent recovery from lows. Do you think the worst is over in the near-term?

A: When we got to that 9000 as you remember I was pretty gloomy and we had come to kind of the bottom end of the trading range now for India, 8,500 Nifty. So the risk for the market is obviously globally now. But global we seem to be kind of keeping our heads above water, expectations that China is going to reduce interest rates very shortly. We are bound to have a bounce from the lower levels but that is all we had at the moment. I expect more volatility going forward and obviously we have got the credit policy coming up as well. So, lots of things out there. I do not think the earning season's going to be great. So, a lot more volatility going forward. I do not see us really moving so significantly higher in the very short-term and obviously, with the holiday, I am sure volumes have been light in the last few days as well.

Anuj: Banks and pharma were the large themes in FY15. Do you get a sense that that will repeat or will something else take over this year?

A: The big three themes for this year which continue to be on the radar is that we still expect interest rates to fall sharply so the banking sector remains a favourite of ours, mainly private banks. Again we have to be very careful ahead of the results season, so we are just buying the quality private banks at the moment. In terms of the leverage of financial gearing story it is starting to play out in quite a number of areas which we have seen more recently in terms of Suzlon obviously been virtually kind of bailed out by the Shanghvi family and then you got Pipavav Shipyard being taken over by Reliance. These pockets of areas where there is growth where there is leverage there of which there is value. So, that has become an interesting area. So, financial gearing will be a theme, that's for sure.

And the third theme is our theme we have been going on for some time now is who is supplying India. So, as all this starts to pick up and we start to see all this picking up in the past few weeks and as the government throws money into infrastructure from April onwards I think we will start to see who supplies those sectors and those companies order book starting to get full and that brings in your operational gearing. So those are the three broad themes that we are sticking to and the sectors.

Anuj: What about the down side? What could be the downside for this market? In the first half of the year given that earnings are expected to be muted again and Fed rate hike could mid of the year.

A: We think India is going to be in a trading range between 8,500 to 9,000 on Nifty just by itself but if we have a more negative background then you could see the Nifty hit towards 8,000. So that would be where we will see the downside. I don’t think people want to chase the market because the profit earnings (PE) is quite high at 16 and earnings have to catch up and that is going to take a few quarters yet. And that is going to take a few quarters yet and that is why we think we are in a trading range for India. But obviously if something more negative happens globally then obviously India cannot withstand that and that is where you get the extra 3-4 percent taking you towards 8,000.

Sonia: In the last fortnight the government has pushed some buttons whether it is in the fertilizer space or power and coal in terms of easing raw material supply, easing infrastructure bottlenecks etc is this a time to buy any of these sectors?

A: The government is doing some of the right things but really to get this economy going and to get confidence back they need to throw money into infrastructure, so they got to stop putting out contracts for railways, roads, ports and get some company’s order book started to be filled. Unless you get that, the economy is not going anywhere very quickly and neither are earnings. So, we know that is what you need to see. If all these things that government is doing will help as the economy starts to grow that is going to help companies , but I wouldn’t just on the back of what the government’s done at the moment at the moment go and choose any company because there is no volume for them to see their top line and bottomline grow. So, it is tinkering in the right way but now you need to kick-start the economy to really put that through to the economy and through the companies top line and order books.

Anuj: You did mention financials as a theme for 2016, but what within financials because this is a large space where Public Sector Undertaking (PSU) banks, private banks, Non-Banking Financial Banking Companies (NBFCs) and sometimes with divergent performances?

A: Yes, I am looking at banking. This is going to be an interesting results season because obviously we will get a good idea of the NPAs, restructured assets which have either happened or not happened and we will have a clearer picture of who is starting to emerge. The private banks are pretty easy to workout but the PSUs is a little bit difficult.

 I do like what the SBI chairwoman is doing. She is making a lot of right noises whether I want to buy that is a different matter but if you get into the bankruptcy rules or laws coming through that could be a big game changer for the banking industry. There is a lot going for the banking industry but reduction in the interest rates and getting the economy going will obviously help the banking sector but unless you get away from the management problems of the past and get new management into the PSU banks you can really grow those assets than kind of where we are and that is why you will probably continue with the private banks and selectively on the PSU but it is a sector we like and we are going to be kind of investing in but the result season will give us a lot more of the pecking order both for the private and the PSU banks.