Looking at the Indian economic drivers, especially inflation, companies' growth rates and interest rate, Gaurav Garg, Head of Research at CapitalVia Global Research expects the economy may outperform the Fitch Ratings and may report around 9.5 percent for FY22.
Fitch Ratings lowered its economic growth forecast for India for FY22 to 8.7 percent from 10 percent due to severe second Covid wave.
Oil is anyway a big risk for a country like India that imports 80-85 percent of oil. So, "when it comes to the rise in oil prices, India must deal with it strategically because an increase in oil prices will worsen the country's financial deficit because the majority of the country's economy is reliant on it," said Garg.
Q: What is your analysis over RBI monetary policy? Have you changed your projections (inflation, growth, rate hikes etc) after the policy?
For the eighth time in a row, the Reserve Bank of India's Monetary Policy Committee kept the repo rate and reverse repo rate at 4.00 percent and 3.35 percent, respectively, in the October policy. The governor also stated that the central bank will maintain its stance as long as it is necessary to keep the economy afloat. Mr Shaktikanta Das has also stated that economic indices like inflation and market performance are doing better than projected.
Based on the RBI's decision, we believe the central bank would maintain the same rate at least till the end of FY22. In terms of inflation, we expect the rate to be within the RBI's target range (4-6 percent), and are optimistic about India's growth rate, anticipating it to be around 9.5-10 percent for FY22.
Q: Do you think inflation and oil prices can dampen the market sentiment and become a cause for major correction in the near future?
Albeit India saw 6.3 percent inflation in May, the rate has gradually decreased from month-to-month. The rise in commodity prices around the world also contributed to the 6.3 percent number. When it comes to the rise in oil prices, India must deal with it strategically because an increase in oil prices will worsen the country's financial deficit because the majority of the country's economy is reliant on it.
Looking ahead, inflation may not drag the economy but any further increase in the oil price may have an impact on the economy.
Q: Auto and Realty stocks had a strong run this week. What are major reasons and should one buy these stocks now or be selective? What can be bought amongst them?
The Indian auto stocks are surging as the world's automobile businesses issue statements about the loss they may face as a result of the chip shortage. Two major elements are driving the rally. First, following the massive sell-off in auto stocks due to the chip shortage, they are now available at a discounted price. Second, the central government approved of the production-linked incentive (PLI) scheme. In the auto sector, high-quality equities such as Maruti Suzuki, Hero Motocorp, and Motherson Sumi are recommended.
The Indian real estate market has been underperforming for the past five years, but it is showing signs of recovery in 2021, with both volumes and prices bottoming out. Low borrowing rates, government backing, and industry consolidation, properties available at much lower prices are all contributing to a turnaround in this sector. One can look for quality stocks such as Godrej Properties, Oberoi Realty etc.
Q: Has the TCS' quarterly earnings met your expectations? Is it overpriced now with 36 percent gains YTD and should one buy the stock now? What is your broad expectations on rest of IT stocks earnings? What could be opening premium/discount for TCS on Monday after earnings?
The IT giant TCS has kick started Q2 FY22 earnings season with a positive note. The IT giant has reported a net profit of 6.8 percent QoQ to Rs 9,624 crore and revenue up by 3.2 percent at Rs 46,867 crore.
Although the quarterly figures showed growth QoQ still it missed the market estimates. The P/E (price-to-earnings) of the stock is higher than its peers as of now and therefore it would be better for investor for a healthy correction before adding the stock into their portfolio.
We can come to a conclusion of the performance of the other IT companies by looking at the performance of TCS as it is the market leader in the IT industry. We expect QoQ performance to grow, however the market expectations are met or not will be the deciding factor which will affect the course of the sector in the short to mid-term.
Since the results did not meet the street expectation, we expect stock to open at discount around Rs 3,900 on Monday.
Q: Fitch Ratings cut its economic growth forecast for FY22 to 8.7 percent from 10 percent due to severe second Covid wave. Do you agree with Fitch Ratings and what is your forecast?
Fitch's rating came a day after Moody's rating in which the agency revised India's outlook from "Negative" to "Stable," predicting 9.3 percent GDP growth in 2021-22, followed by 7.9 percent the following year. But in contrast to that, Fitch slashed the India outlook and changed from stable to negative and cut the projected growth to 8.7 percent from 10 percent for FY22.
By looking at the Indian economic drivers, especially inflation, companies' growth rates and interest rate, we may expect the economy may outperform the Fitch Ratings and may report around 9.5 percent for FY22.
Q: Can you name the sectors which could report double digit earnings growth and fall in earnings growth in Q2FY22 versus Q2FY21?
By looking at the economy and rebound in the various sectors especially after the second wave. Sectors like IT, Metals, Energy, specialist chemicals, Realty and Infra may give double digit growth and on the other hand sectors like Pharma, Auto and FMCG may see a decline in the earnings as compared to the Q2FY21.Disclaimer: The views and investment tips expressed by investment expert on Moneycontrol.com are his own and not that of the website or its management. Moneycontrol.com advises users to check with certified experts before taking any investment decisions.