Focus on strong Indian macros and not FII outflows: Emkay

Anuj: The space to focus on from last three or four days has been metals. We have seen quite a bit of buying, of course today’s been a different day. We have seen profit booking in some of these names with the kind of a recent rally but at current prices what is you call on some of these names like NMDC, Hindalco and Tata Steel?

A: As a policy we do not invest in any commodities stocks so I would really not be the right person to comment on any of this metal companies per se. Broadly if I look at the overall market what we are clearly seeing that the overall depth in the market has kind of reduced so little bit of buying or little bit of selling has a fairly good impact cost on either way. So that is what we are seeing.

I think the most important thing is, if you look at on a little larger scale what we have seen is that for the entire month of August we probably had about USD 2 billion of foreign institutional investors (FII) outflows. Even in this first few working days of September we have almost a billion dollars of FII outflows so it is almost a USD 3 billion since the beginning of August and which has kind of somber the mood completely as far as the Indianan equities is concerned.

Of course there has also been a hard reality in terms of people have now downgraded their earnings for the year FY16 so that has been one thing on the fundamental side. However, I think broadly a lot of macro factors are still hugely in favour of India which is I think will keep the equities over or under to fairly buoyant.

So this is just the adjustment we had to go through because of the earnings growth for this year which is what we are seeing. Of course the FII outflow which is more to do with the allocation to emerging markets rather than anything very specific with India.

Ekta: Wanted your view in terms of cum October? We will have the Bihar elections, the phase is at least starting from the October 8 th or October 12 th if I got that date wrong but otherwise we also have the earnings season which is going to start October onwards. So, there are lots of cues that we will be working with on that front then do you think that domestic will possibly override global cues and how important would the Bihar elections be from a market perspective as per your view?

A: Bihar elections could have some bit of sentimental effect. However, more important as you said we will obviously be more concentrating on the earnings season. There the expectations have been now tapered off quite a bit because now everybody knows that rural is under some bit of slowdown at least in terms of the growth. Rural earlier was growing much faster than the urban that gap has now kind of narrowed or is almost not there. The overall topline growth for second quarter results will be a little muted particularly on the consumer company side is what we gather by talking to some of the management.

So, the result season will be more of focused over there. More important thing is also that we will have to see a little forward now that how things are moving at the macro and in terms of we have heard a lot of announcement from the railway ministry or the road ministry and whether the things are now actually moving because by October, November and December we should see a lot of things moving at a ground level.

If that happens because it is very clear that the capex cycle will have to be revived by the government capex. If that has to happen we have to see some early signs at the ground level in the October, November, December quarter which is what we will have to really focus on because if that has started moving then at least we have a hope that in the early first quarter of FY17 we will see good amount of order inflows for a lot of lot capital intensive companies.

Anuj: What about oil marketing companies (OMCs), we have seen decent correction from the recent highs and we have seen crude prices also now retreat a bit after the kind of short covering rally, are they good bets are current levels or would you avoid them as well?

A: The oil marketing companies are looking fairly attractive and it is just to more to do with overall corrections in the market that is when they say that the market is weighing machine and that is where the arbitrage opportunity is when something becomes overly cheap then obviously you will keep funds moving from one asset to an another equity asset.

Broadly I think OMCs you are right they certainly look very attractive on a next two to three years bases. Very clearly they have been doing well for the last one year or so. Their working capital cycle has got much better now and the way things are going they will continue to do fairly well in terms of their earnings growth which should be very strong for the next two years.

Ekta: What is your sense in terms of this couple of these stocks which have exposure to Brazil say the likes of Torrent Pharmaceuticals or the Glenmark Pharmaceutical of the world? Would you be worried about their exposure and the impact that we could see in their earnings in the next one to two quarters?

A: There could be some impact but my sense is it would be fairly limited because we also have to understand that Brazil for some of these companies could be having some bit of topline but it doesn't really significantly add to the profitability yet because it is still a apart of that emerging businesses.

So, overall I don’t think the profitability will be affected in a very significant way because the profitability is very largely coming from the US markets and the Indian markets for some of these large companies. I don’t see a major impact, it is still too early to say but my broad sense is that it would have a very limited impact.