The reversal in the earnings cycle has just begun, and we believe Q3FY18 will be a stellar quarter. We expect FY18 to clock earnings growth of 15-20 percent, Sandeep Raina, Associate Director, Edelweiss Investment Research, said in an exclusive interview with Moneycontrol’s Kshitij Anand.
Q) Markets @ fresh record highs! What is your call on markets for the rest of 2017? Are we likely to end 2017 with gains over 20 percent compared to a flat 2016?
A) We continue to maintain a bullish stance on Nifty. The reversal in the earnings cycle has just begun, and we believe Q3FY18 will have a stellar quarter owing to the festive season, low base effect, and global tailwinds.
Higher earnings will translate to new highs. Thus, we expect FY18 to clock earnings growth of 15-20 percent.
Q) Top five under-owned stocks which you think could generate wealth over the next 3-5 years?
A) We prefer stocks like Birla Corp, Dilip Buildcon, Asian Granito, PNB Housing, Ujjivan Financial services.
Q) The mid & small cap segments are also hitting record highs in line with benchmark indices? Is the rally likely to continue or investors are better off booking profits?
A) Let’s put the rally in context. All the high-frequency macro indicators like electricity demand, manufacturing PMI, auto sales, exports growth have seen a recovery in the last 3 months.
Additionally, fiscal stimulus by the government and capital expenditure are supporting growth momentum. Thus, we believe the rally which is just beginning is more broad-based, and there is more to come.
Q) Bank recapitalization – a smart move by the govt? Do you think it reverses fortunes of public sector banks and could also lead to an upgrade by global rating agencies?
A) Low lending is a major concern for an emerging economy like India. In order to address this issue, the government has already taken steps to look into the supply side of the lending problem, PSU Banks have had an impaired balance sheet, but they also have in-depth reach. Hence, there is a lot of consolidation underway.
With the insolvency and bankruptcy code in place, cleaning NPAs and restructuring bad assets should become relatively easier.
Q) Post the recapitalization, we saw money moving to PSU banks which are highly under-owned as private and NBFC stocks corrected while PSU stocks rallied. Do you think the trend will continue?
A) NBFCs and private banks will continue to grab market share. Structurally, we are more bullish on them than PSU banks.
Q) Two sectors which you think could emerge as a dark horse in the next 1-2 years and why?
A) We are bullish on infrastructure and more so, on road construction, cement, consumption, and BFSI (NBFC).
Q) Recent data suggests fund managers have started paring their position from stocks which have already more than doubled investors’ wealth in 2017? Is it a smart move, and should retail investors also start doing that with respect to their portfolio?
A) Investing in bull markets may seem difficult as prices run up. Stocks with structurally strong stories with high moats will continue to do well and investors should continue to hold them.
Q) Will poll outcome in two major states have a bearing on markets? Do you think it will be a litmus test of the government ahead of 2019 general elections?
A) Whatever be the outcome for Gujarat and Karnataka, which are major states, the policy changes done by the government would not change.
Also, I would believe the govt will continue to work on reforms. Therefore, unless there are any major shocks there will be negligible impact on markets.
Q) How are earnings panning out in the September quarter? Do you think earnings will be back in double digits?
A) September earnings are panning out as expected. There is a remarkable improvement, ahead of consensus, in Nifty EBITDA margins seen at 19.4 percent. Lower interest cost has also reflected in higher margins. We think FY18 could see earnings growth of 15-20 percent.
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