Speaking to CNBC-TV18 Prabhat Awasthi of Nomura Financial Advisory said that on an overall basis the issues that are coming to the fore from the Tata stable are well known. Some of Tata’s big companies have been well tracked. “Stock prices will react, but they will trade at their fundamental value. Ultimately, they will go back to reacting to earnings.”
He has a Sensex target of 28600 and Rs 31000. “We don’t see any reason to change that,”he said, adding that we are heading into macro events. The US Fed meet is around the corner. Markets might be see some fall, not a catastrophic fall, he said.
Earnings and bond yield difference are looking attractive, he said. “I am saying markets won’t fall too much, and if they do, it will be a buying opportunity.”
FMCG earnings have been weak, and Awasthi said the real impact of the monsoon will take effect in a month or two. “If you look prior to monsoon, there were drought-like conditions. It is too early to say consumer company numbers are disappointing because monsoon is great.”
He also mentioned that monetary conditions have eased. Transmission is getting stronger. “I would think we have seen off the worst growth period.”
Axis Bank’s poor results shouldn’t be taken to signify the performance of entire banking sector’s. “I think it is again stock specific.”Below is the verbatim transcript of Prabhat Awasthi’s interview to Latha Venkatesh, Sonia Shenoy and Anuj Singhal on CNBC-TV18.Latha: What is the sense you are getting first of all, Tata Group stocks, there is quite a seminal fall, Tata Motors DVR is down 3.6 percent, Tata Motors stock 3.2 percent, Tata Power 3 percent, Tata Steel 2.5 percent and if you looked at the smaller stocks or rather the non-Nifty stocks Indian Hotels 4 percent down, Tata Teleservices 5.5 percent down, Tata Metaliks, Tata Global and all are down about 1 percent each. Do you think fund managers will trim their positions in some of these stocks?A: On an overall basis, this will pass because end of the day a lot of issues that are highlighted or that are sort of coming to the fore are well known to the analysts. These are well known companies and extremely well tracked companies, most of them, especially the larger ones and the issues are generally known. Obviously to the extent that there is acrimony and there is sort of an overall overhang of stock prices will react but they will ultimately trade at their fundamental value. So, sometimes in these kind of falls you do get an opportunity because they are reacting to the news flow right now but ultimately you will go back to reacting to earnings etc. So, that is my take. It is sort of a temporary issue and will get sorted out. So far as stocks are concerned what happens, the markets will absorb that.Anuj: What is your overall call on the market. As you have been saying it is not very expensive, but it is not very cheap either. What is your sense going forward? We have seen a bit of ebb in fund flows over the last few days, do you think that could lead to a reasonable correction?A: In the beginning of the year, our Sensex target -- because we had a percentage upside between 28,600 to about 31,000 end December and we sort of don't see any reason to change that. So, simply speaking we are almost there. Now, we are getting into a macro event, the Fed hike and there will be nervousness around that from global investors and also remember that there was a very sharp rally, markets have consolidated since then to some extent. So, there might be some fall, I don't think there will be a catastrophic fall.I have also pointed out that some of the earnings have not been as great. It should have been expected because the data in the economy was weakening for a while in the last at least 5-6 months. So, between the earnings sort of US news flow etc markets were bound to sort of consolidate and dip somewhat.Having said that since they have been here for four months they have gotten cheaper with respect to their own valuations four months ago and also I remember that bond yields in India have fallen dramatically. So, that earnings and bond yield difference is looking quite attractive. Therefore, I am saying that markets will not fall too much and if they do for any reason that will be a very good buying opportunity.Sonia: It is good you spoke about earnings because that was my next question. The Fast-moving consumer goods (FMCG) earnings have been surprisingly weak. This at a time when the expectation was that things would be good considering we have a normal monsoon. How did you read into numbers from the likes of Hindustan Unilever (HUL), Jubilant FoodWorks, Dabur India Limited etc?A: One, the monsoon sets expectation pretty quickly but the real monsoon impact will only happen once the harvest is over and money starts flowing into the rural economy and that will only happen in one or two months time.So, yes, the markets might have thought that everything is hunky dory but the reality is that if you look prior to monsoon, we had a pretty terrible drought like conditions. As I said incomes will only flow in with a lag when the harvest is there and farmers start getting income. So, it is too early to say that consumers company numbers are something which are disappointing because monsoons was great. You will probably see a pickup going forward. So, no need to get very disappointed at this point of time.Also, the fact is that the monetary conditions have considerably eased in India. Rate cuts have happened, transmission is getting stronger. So, I would personally think that we probably are seeing worst of the growth period. If you look at the real economy numbers across the board truck sales -- I will just take some very broad macro numbers -- or electricity demand, they had weakened in this quarter and therefore the real economy indicators were weaker while the earnings expectation were probably tad ahead of that. So, we are sort of seeing some adjustment. I would think that things would improve in the next six months simply because of the factors that I mentioned. Before that you will see a sequential pick up in the economy and earnings will get better in the coming time.Latha: Post Axis Bank's guidance on its watch list would you want to trim positions in the corporate facing banks, Axis Bank, ICICI Bank, State Bank of India (SBI), the whole lot?A: It is again very stock specific because the fact is that there are banks. One, I don't think we are sort of seeing incremental slippages etc. It is all slipping from the past, these problem counts, probably being recognised now. So, the level of recognition in various banks is different and we have to judge each bank by that yardstick.In general we are generally positive on financials. Obviously we are more positive, it is easier to make that call with retail bank. Corporate banks have varying level of recognition of non-performing assets (NPAs) but there also we think in general except one or two, incrementally we have become more positive on even corporate banks. So, I don’t think one bank result essentially means that the entire bunch is going to face issues. So, yes, I don't think it is generic issue, it is more specific issue.Anuj: The other leg, which has done well for this market is discretionary consumption and we saw for example Hero MotoCorp's numbers yesterday and the kind of margin profile that the company posted. Do you think that space remains a leader going forward specially in the two-wheeler space?A: The discretionary consumption has definitely been better. If you look at for example between two-wheelers and four-wheelers, four-wheelers have been doing much better than two-wheelers. It is because the urban consumption has definitely been better and the rural has been lagging as again is evident from the consumer company results, which are rural facing. It will probably get more even going forward.Now the results that you see of companies are based on wholesale sales, not necessarily based on the retail sales the picture of which we will only get to know after the festival season has passed because end of the day all companies push inventory into the market because it gets cleared up in the festival season. So, real demand growth essentially will be visible only in the coming time.Having said that, clearly I would think that discretionary consumption, if anything, should get better because rural has been extremely weak all this while. So, it should get better after monsoons and therefore should add to the demand. Therefore, rural plays, rural sort of facing companies discretionary consumptions should pick up.Obviously margins have been well managed simply because raw material costs in general though they have gone up somewhat but not all that much compared to what they used to be at the peak. If the demand environment turns better then you can always pass on cost increases.So, our view is that we are getting into a decent period for discretionary consumption and you will get good compounding in terms of volume growth. Though for a longer perspective cars will definitely do better -- because they have much lower penetration and as the economy grows, penetration grows much faster than two-wheelers so, looking at compounding story four-wheelers will do better than two-wheelers in terms of just volume growth going forward -- incrementally even two-wheelers will probably do better in terms of volume growth as you go forward.
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