Financials to lead, SBI seen biggest beneficiary: Antique

Sonia: Your panel is extremely impressive; you have Dilip Shanghvi of Sun Pharma. Gautam Adani, Ashwin Dani of Asian Paints, Rana Kapoor, etc and the likes of Ashwin Dani don’t speak too much especially to media. What is the sense you are getting about how corporate earnings will pan out from hereon because in this quarter it has not been so impressive?Dalal: Corporate earnings have not been encouraging but to a larger extent we are interacting with lots of people, we get a sense that structural changes at the grass root levels are happening and it is matter of time and you will see these getting reflected in the numbers as well. Quite often we lose patience and we would like everything to happen on a quarterly basis but I am sure you will appreciate when it comes to nation building; it is a process which takes time. However, the fillers which I get, the fundamentals, the foundations are being done on a right perspective which will lead to fruits in two to three quarters from now. Latha: You think the inflection point in earnings will be or improvement in earnings comes in two or three quarters that would be second half FY16? Dalal: Yes.Latha: What might be the leaders of the rally you think, when you put up a phrase ‘Build India New India’ which were the stocks you had in mind? Dalal: What I would like to highlight here is first of all the rally which we saw in 2014 was largely led by counters which did not have impact on the economy to a large extent except for automobile, IT and pharma which led the rally were all dominated more by earnings abroad. Considering the fact that the economy now is at a stage where you will see things improving. I would just like to highlight here, we have seen in India the cycles of business which rotates after every six years and what we see is that whenever you see a growth of four years below a trendline or above the trendline it moves up on the opposite direction once being sluggish over say three to four years. We have seen this in the last four years cycle where the gross domestic product (GDP) growth was below the 5.3 percent mark and we as a house believe that we are at the cusp of witnessing this change where the trendline could be breaking up on the upward direction. Led to it the government action will fuel more which will lead to more demand and numbers getting shown up in two or three quarters from now.

Sonia: What are you advising clients attending your conference in terms of sector wise positioning now? Doshi: Sector wise I think financial will always lead because any big movement in the economy, financial will be the biggest beneficiary. Then there is interest, people have now started revising in infrastructure also and capital goods plus automobiles which is also a part of the economy. Once this entire movement of coal mining, iron ore mining and all that will start will lead to the even the demand of the heavy commercial vehicle and all. So, led by financial, then infra and your automobile which will be the sector which we will prefer to recommend heavily to out clients.

Latha: When you say financial will you buy PSU banks, we saw that deep gashes coming in Punjab National Bank (PNB), Bank of Baroda (BoB), some of the biggest banks in the public sector space. Even ICICI Bank was not spared, what will you buy or what will you advice buying?Doshi: I think mix of both. In the large public sector banks, State Bank India (SBI) will be the biggest beneficiary of the economy turning around and NPA coming down once this power and coal related problems get slowly addressed and all this will reflect into reducing in their NPA and may be because of even the G-Sec coming down will help them for their debt portfolio also. So, SBI will be the biggest beneficiary followed by Canara Bank which has shown little better result also. No matter, everybody knows that the largest bank that is HDFC Bank and ICICI Bank, they are doing well. May be because of some issues with some of the infra and power related issues, ICICI Bank could have provided some NPAs but going forward that also will be addressed in next one or two quarters once the mining and iron related issue will get over. I think that also will start reflecting into lowering down the NPA and their performance will also improve from here.

Sonia: We have a lot of supply of paper that is going to be hitting the market in the form of HDFC Bank, State Bank of India (SBI), Tata Motors, etc. In your mind will that put pressure on the market and if yes should it be used as a buying opportunity?Dalal: Certainly it has to be used as a buying opportunity. My experience suggests that whenever there is a supply of quality paper, money is not an issue. I have always seen even in the past that to a large extent international funds which are not earmarked for India but when good quality paper like say for example Coal India which we saw recently or HDFC Bank coming in, funds which are not even earmarked for India get diverted to India. So, I guess we should not worry about the liquidity we should probably worry about the quality of paper coming in. If the quality of paper is good I don’t think money will at all be an issue.

Latha: The numbers even for the venerable Asian Paints was not all that good, that volume pressure could be seen even good companies. Where does the capex growth, where does the kicker come? Consumers don’t have enough money, you can see that they are not buying enough two wheelers, they are not buying enough paints, corporates many of them are beleaguered balance sheets – they will not be able to invest, the fisc is just running tight – 3.6 percent is going to be a big ask in terms of fiscal deficit. What is the kicker for growth? Dalal: This conference is all about that. Let me just highlight few things, we talked about Swachh Bharat, we talk about Make in India – these all are initiatives and these are the initiatives which can gather momentum. These are the cases which enable employment generation, which get into consumption pattern, which help demand growth all across. What we need to highlight here is that these all initiatives of the government will translate into a movement and don’t be surprised this could be a revolution; we have seen this revolution in the past - the Green Revolution in 1960s. So, what I am trying to highlight here is that on ground reality sentiment is improving first leading to all these initiatives; housing for all. You will see a lot of things in building material space get traction. What we need is improvement in sentiment which is already happening. All these initiatives which have to address few of the concerns which are being faced which I am sure you will see it getting converted in next two to three months is where the demand will come from. We all will be surprised six months down the line when we see all these positive numbers getting reflected. Sonia: What do you think the returns could be by the end of the year for the Sensex and more importantly if the earnings do not pickup at least in the early part of FY16 do you think the returns could be more moderate on the index? Dalal: Calendar year 2014 which we saw 30 percent was dominated more by liquidity flows and expectation of the new government leadership all coming in. This year will again be a question of to what extent these numbers and the initiatives which I am talking about come true. India is in a sweet spot, we are fortunate vis-à-vis all other economies so I guess some more initiatives by the government will see the impact coming through, may be after six months or nine months but markets will start playing for it. So, 30 percent return is a challenging aspect but 20 percent return is very much doable.