Santosh Meena, Head of Research at Swastika Investmart, believes the Indian economy is on the cusp of massive growth in the coming years and early signs are visible where employment is likely to witness significant recovery.
"I am very optimistic about the Capex cycle in India which we were missing for more than a decade," said Santosh who has more than 10 years of experience in the financial markets with expertise in technical & derivative analysis.
On the real estate space, he feels the bull has just started in the real estate sector after the pain of a decade and this bull run may continue for at least the next two-three years.
Q. Morgan Stanley said India’s capex-to-GDP ratio is set to rise and employment prospects will be lifted. Do you feel so and why?
Yes, I am very optimistic about the Capex cycle in India which we were missing for more than a decade. India's capex to GDP ratio is bottoming where COVID-19 is acting as a key catalyst for this turnaround because the Indian government comes out with strong capital expenditure without worrying about the fiscal deficit. The government has shown great confidence in capital expenditure that will boost confidence among private players as well where we are seeing that many corporates are announcing their capex plan.
The China+1 policy is another big trigger for the capex cycle in India as we are seeing strong demand in the steel, chemical, and textile sector. The Indian economy is on the cusp of massive growth in the coming years and early signs are visible where employment is likely to witness significant recovery.
Q. 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?
If we look at the IT sector then strong growth momentum is continued however higher attrition rate and fall in the amount of deal wins are some concerns amid expensive valuations. Some of the Midcap IT stocks are witnessing strong dollar revenue growth to justify their expensive valuations however TCS missed the street expectations on some parameters.
The biggest crux of earnings season so far is pressure on margin due to rise in wages and input cost. Asian Paints came out with a negative surprise with a sharp fall in margin however TVS Motor surprised positively with better-than-expected margins. HUL was a bit of a negative surprise with poor volume growth but we have to look at more numbers to understand the trend.
Banking stocks are showing strong performance and I believe this quarter may remain strong for most of the banking stocks as asset quality is improving, NIMs are healthy with improvement in loan growth.
Q: Moody’s upgrades Indian banking system’s outlook to stable from negative. Does it mean that problems faced by banking system are behind now?
The Indian banking system is in the sweet spot to support the economy because word of the NPA cycle is behind us. We are seeing significant improvement in the asset quality and the loan growth is likely to get momentum soon on the back of a strong recovery in the Indian economy.
The cleanup process has been done which was undergoing for more than five years that includes the formation of NCLT and bad bank, consolidation of PSU banks, capital infusion, etc and it is time to gear up the credit cycle thanks to the Capex program by the government where the private cycle may also get momentum soon. Banks have adequate liquidity and corporates are ready for fresh capital expenditure after deleveraging their balance sheets.
Q: Do you think the BSE Sensex can fall below the 60,000 mark or can surpass the 65,000 mark by Diwali? Do you expect major correction, if any, in short term that can create panic among investors/traders?
There is a risk of Sensex falling below 60,000 by Diwali but it is still difficult to say that correction has started as momentum is very strong. There are some signs of distribution but it can be just a sectorial rotation, therefore, we have to wait for some more sessions to understand the clear trend however institutional investors are in a selling mood for the time being.
Sensex may remain in the range of 60,000-62,000 by Diwali while any decisive move below 60,000 may lead to a correction in the market.
Q: 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 the Auto sector witnessed a catch-up rally however there are still concerns about the supply and raw material prices, therefore, there is a risk of a sell-off in this sector. There is a turnaround story in the real estate sector thanks to low-interest rates, consolidation in the industry due to RERA, supportive government policies, and improved sentiments. The bull has just started in the real estate sector after the pain of a decade and this bull run may continue for at least the next two-three years.
Strong demand recovery is leading growth in the power sector and there are supply-side shortages; however investors have to be selective in this space where stocks like Tata Power still have the potential to reward investors due to its aggressive move in clean energy and electric vehicle (EV) infrastructure. PSU stocks are catching investors' attention due to attractive valuations and the positive attitude of the government towards asset monetisation and profitability of PSUs however there is need to be selective in this space as well.
Q: What is your view on Reliance Industries’ Q2 earnings and what could be opening premium for the stock on Monday?
Also read - RIL Q2 Result: Profit jumps 46% to Rs 15,479 crore; all businesses witness growth above pre-COVID levels
Reliance Industries posted a mixed set of results where the Retail segment is witnessing an extraordinary performance. Reliance Retail business has shown growth of 18 percent (QoQ) and witnessed margin expansion at a time when most of the companies are showing margin compression.
Reliance Jio's performance is in line where ARPU of Rs 143.6 is better than expected but the major concern is the significant fall in subscriber base of Reliance Jio that may disappoint the investors.
Also read - Reliance Jio Infocomm Q2 Result: Profit comes in at Rs 3,528 crore, ARPU at Rs 143.6
The refinery business did well while there is some margin pressure in the petchem business.
It will be interesting to see stock's performance on Monday as overall results look good with excellent performance on the retail front while disappointment from Jio. I think the market could have thumbs up the performance if there was no negative surprise caused by fall in subscriber base but as of now, there is a risk of profit booking because of this concern.
Also read - Reliance Retail Q2 Result | Net Profit rises 74% to Rs 1,695 crore, revenue grows 11% to Rs 45,426 crore
Technically, Reliance is trading at critical support of 20-DMA which is currently placed at Rs 2,610 that coincides with upsloping trendline support. Below this, we can expect a correction towards Rs 2,500 level while if it manages to hold its 20-DMA then we can expect a bounceback towards Rs 2,700-2,750 zone.
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