In an interview with CNBC-TV18, Tirthankar Patnaik, India Strategist at Mizuho Bank says government steps, like hiking import duty, will benefit the metal industry.
Tirthankar Patnaik, India Strategist at Mizuho Bank feels the probability of Nifty falling below 8000 is low, but it cannot be ruled out due to events in China.
A weak yuan can further drag down commodity--especially iron and steel--prices, says Patnaik. Government support in the form of higher import duty should offer some relief to the metal industry, he adds.
He expects the rupee to continue outperforming other emerging market currencies because of relatively better macro fundamentals.
Considering the recent initiatives by the government, it is a good time to invest in banks, Mahantesh Sabarad, Deputy Vice President – Research at SBICap Securities told CNBC-TV18.
In consumer goods segment, Sabarad recommends GSK Consumer, which he says is trailing its peers in valuations. With strong products and minimum advertisement expenses, the stock will continue its strong performance, he says.
Sabarad recommends Dish TV and Allcargo on back of strong performances. In IT, Infosys is his pick because of strong strategic decisions by the management. For global exposure, Patnaik recommends IT and pharmaceutical sectors.
Below is the transcript of Tirthankar Patnaik's & Mahantesh Sabarad's interview with Anuj Singhal and Ekta Batra on CNBC-TV18.
Anuj: What is your call on the market setup right now? Do you think there is still some more weakness to come or is it a good buying opportunity right now?
Patnaik: Our markets have belied the trend with emerging markets and with global markets for a while. Since June our markets have been fairly strong clipped, but now that the overhang of the global macro situation deteriorating is coming to roost. Our markets are seeing the pressure.
We are seeing the pressure on not just the Nifty but also on the INR. Flows have also petered out, barring the support from domestic institutional investors, our market would have been much worse in my sense and there is no further downside for the markets at this point if the global situation continues to unravel.
Ekta: Do you think that the Bank Nifty will continue to be pressured because of maybe further depreciation in the rupee and the reason I ask is that we had seen a similar trend in 2013. Are we staring at a similar trend now?
Patnaik: Bank Nifty did have some amount of support coming in after the government's recent announcement on public sector banks, they have run-up quite sharply. If the uncertainly on India comes in, the first space people typically need to get out of the financial sectors. We believe that pressure on the Bank Nifty is likely to continue going forward as well.
Anuj: A word on the way the Bank Nifty has fallen? What is the call from here on?
Sabarad: The more it falls the cheaper the Index is becoming. You have banks now really trading at 0.5 or even lower multiples for quite a while now. Fears about the non-performing assets (NPAs) have been quite frankly overdone. On the positive side you should look at the government’s stance and they come up pretty strongly in terms of recapitalising some of these PSU banks.
For us between the clean up that is happening in terms of the NPA book versus the capitalisation that is taking place the later looks quite strong and if the valuations are suggesting that there are at perhaps five years lows or six years lows then this is an opportune time to get into some of the banks names.
Anuj: What is your call on some of these names which have big global exposure? Do you think it is time to be cautious or is it a good buying opportunity? Say a name like Tata Motors or some more stock which have fallen because of that?
Patnaik: I would not like to comment on specific stocks, but our sense is if you want to have exposure to stocks with a global exposure sticks to names like IT, pharma. Other places especially in automobile you might see drop in consumption hurting. The sense is if you want to go global go in IT and pharma at this point.
Ekta: Wanted your sense in terms of probing a little more in to in terms of the banks because we have seen the Metals Index correct 30 percent year to date and PSU bank index is down 20 percent. Do you think that the more the metals fall more the pressure arises from the metal space that is how much the PSU banks are going to correct simply because of fears of what could happen in terms of steel exposure of a couple of these banks?
Patnaik: The government’s very quick response in terms of raising import duties right after the devaluation in China shows the amount of concern that is there is iron and steel sector. You see it in Reserve Bank of India (RBI)’s financial stability reports also - this sector is one where the NPA levels are amongst the highest.
My sense is if commodities do go due south from current levels and yes they can given the movements in China, given we saw what happened in the PMI numbers this morning in China. So, there is downside on the iron and steel sector in terms of prices and that in turn translates into further NPA worries for banks.
We have seen the downside - we have seen the bottom at this point. India does remain a long-term story. This is one country where you have a USD two trillion economy where growth is actually moving up this is more than what can be said about most large economies of the world right now. Given the current macro overhang we are likely to see our outperformance diminish a little bit.
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