Gaurav Garg, Head of Research at CapitalVia Global Research said Q2FY22 earnings season has largely been in line with the market expectations, however, what is concerning is the higher cost of goods sold which has impacted margins of many companies.
On the market, he feels indices might halt for some time and might continue to head towards new lifetime highs. "65,000 mark on Sensex by Diwali will be difficult to mount, however we might see these levels by Budget 2022," he said in an interview to Moneycontrol's Sunil Shankar Matkar.
Gaurav Garg, who has more than 10 years of experience across industries and is actively involved in valuation of companies through various valuation models and developing market research reports, expects gap up opening in Reliance Industries, ICICI Bank and Yes Bank on October 25.
What is your reading on September quarter earnings that have been announced so far? What are the top five companies that beat your earnings expectations by a wide margin and missed sharply respectively, and are you bullish on those stocks?
Q2FY22 earnings have largely been in line with the market expectations, however, what is concerning is the higher COGS (Cost of Goods Sold) which has impacted margins of many companies including giants like Asian Paints.
Mid cap IT companies including L&T Technology services, L&T Infotech along with biggies like HDFC Bank, Reliance Industries and Infosys have shown decent performance on earnings. On the other hand, TCS, L&T housing Finance, Hindustan Unilever, Sonata Software and HCL Technologies failed to impress the street.
Moody’s upgrades Indian banking system’s outlook to stable from negative. Does it mean that problems faced by banking system are behind now?
Due to Covid-19, asset quality had deteriorated in the pandemic and now the operating environment has improved as the economy recovered fast. This upgrade to stable from negative helped the banking sector in a positive manner. As we are in a low interest regime, banking and financial sectors might do well which in turn will help not only the core banking sectors but also the other rate sensitive sectors which include Real Estate, Automobiles and housing financing as well.
Do you expect major corrections, if any, in the short term that can create panic among investors/traders? Do you think the BSE Sensex can fall below 60,000 mark or can surpass 65,000 mark by Diwali?
In the bull market, 4-6 percent corrections are said to be normal and should be considered as healthy corrections. Indices might halt for some time and might continue to head towards new lifetime highs. I expect the market to trade in the range of 59,800-62,500 in the coming few weeks with a sideways consolidation. The 65,000 mark on Sensex by Diwali will be difficult to mount, however we might see these levels by Budget 2022.
Auto, Metal, Realty, Power and PSU stocks were the real stars in the last one month, reporting double digit gains. Is it the time to turn cautious over these sectors?
I believe there is enough steam left in sectors especially in PSU stocks as they are still worth investing due to lower PE (price-to-earnings) and attractive dividend yield. As far as Metals, Realty and Auto are concerned we might see a short-term halt in these pockets. However, structure is still intact and in the mid to long term they might do well. Power stocks have given splendid returns in the last few months, and I believe the rally will continue amidst power shortages and global demand-supply disruption.
What is your view on Reliance Industries’ Q2 earnings and what could be opening premium for the stock on October 25?
Oil-to-telecom conglomerate, Reliance Industries, declared its earnings on October 22 evening which exceeds street's expectation as revenue from operations grew 49 percent to Rs 1.74 lakh crore in the second quarter which is a decent growth on lower base; consolidated net profit jumped 43 percent to Rs 13,680 crore for the quarter ended September 30 (Q2FY22). Sharp surge in oil prices has benefited the company in a good way. As far as Jio and Retail arm is concerned, company has witnessed stellar performance as earnings came close to pre-pandemic levels on higher footfalls in retail stores along with higher ARPUs (average revenue per user) for telecom business. In my opinion, stock might open with a gap-up of 2 percent-2.5 percent on October 25 morning.
Also read: Reliance Q2 results satisfy as retail shines
Is it the time to take position in Yes Bank after its September quarter earnings? What could be opening premium for Yes Bank on October 25?
Yes Bank has announced strong numbers on both YoY and quarterly basis as it reported a 74.3 percent YoY growth in net profit to Rs 225 crore for the quarter ended September as against an expectation of a net loss of Rs 31 crore. Asset quality has improved as net NPA (non-performing assets) ratio came in at 5.5 percent as against 5.8 percent in the previous quarter. I see numbers to be decent and there is a high chance that we see green ticks on stocks on October 25.
What is your view on ICICI Bank corporate earnings and what could be opening premium for the stock on October 25?
ICICI Bank has posted impressive numbers for the quarter ending September 2021. The core operating profit of the bank i.e. profit excluding provisions, taxes and treasury income grew by 23 percent to Rs 9,518 crore in the quarter ended September 30, 2021 (Q2-2022), NII grew 25 percent YoY and NIM is at 4 percent. Profit after tax also grew by 30 percent YoY to Rs 5,511 crore, there was growth of 17 percent in the total deposits for quarter ending September 30,2021, the average CASA grew 28 percent in Q2-2022. The increasing deposits and especially CASA is expected to place the bank at a favourable position and may lead to growth in its loan portfolio. The net NPA ratio declined from 1.16 percent at June 30, 2021 to 0.99 percent at September 30, 2021 which is lowest since December 31, 2014.
The bank seems to have seen a growth in retail loan portfolio by 20 percent. The SME business, comprising borrowers with a turnover of less than 250 crore, grew by 42 percent year-on-year and as at September 30, 2021. Growth in the domestic wholesale banking portfolio was 14 percent year-on-year. The domestic advances grew by 19 percent year-on-year as at September 30, 2021.
The numbers, therefore, look promising and it may turn out to further improve the prospects of banking and is expected to have a positive impact on Bank Nifty and thereby on the overall market. The stock is expected to open with a gap up of around 2 percent on October 25.
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