Corporate and retail banks along with IT remain our top pick, and if a stable government is voted to power and the monsoon is ‘normal’, the economic engine is likely to roll faster creating improved demand environment, Arun Thukral, MD & CEO, Axis Securities, said in an interview with Moneycontrol’s Kshitij Anand.
Edited Excerpts:
Q: What are your views on March quarter earnings?
A: March quarter earnings have been a mixed bag so far. Companies in FMCG sector recorded single-digit volume growth after seeing almost five quarters of low double-digit growth.
The tepid volume growth is temporary as per management commentary which is largely due to stress in the rural economy and tight liquidity in the system. This situation is expected to rebound post elections.
A good monsoon is expected to support the volume growth going forward. HUL and Titan Company reported better growth numbers compared to its peers in FMCG and discretionary consumption respectively and we believe healthy growth to continue going forward.
Similarly, the discretionary spends are seen losing momentum and is very much visible in the monthly sales number of automobile and consumer durable segments.
We are of the opinion that the discretionary consumption would bounce back if the monsoon is ‘normal’, liquidity situation eases and stable government is in place.
Q: Where are the pockets of opportunities in this market?
A: Corporate and retail banks along with IT remain our top pick. The profitability of corporate banks is expected to improve given that the resolution of NPAs is progressing albeit slowly and the banks have made requisite provisioning. Incremental slippages are contained as asset quality improves.
If a stable government is voted to power and the monsoon is ‘normal’, the economic engine is likely to roll faster creating improved demand environment and better capacity utilisation.
Indian IT companies have reported mixed performance, healthy outlook for FY20 on the back of improving deal wins. Steadily accelerating US economy also augurs well for the IT sector on the back of rising IT budgets for the US corporations especially the BFSI sector. A growing share of digital revenues helps to improve the margins over the long run.
Q: There are signs of a slowdown in the market, do you think we have entered the first phase of a bear market?
A: The golden phase of markets is still ahead. India’s per capita income has just crossed $2,000; there is empirical evidence of a rise in discretionary spends in other economies when the per capita income crosses this level.
The current slowdown is cyclical and can be attributed to rural stress, as well as uncertainty due to ongoing general election and tightness in liquidity.
Consumption-led demand would push capacity utilisation which currently stands at approximately 75 percent thereby inviting private capex.
The markets are currently experiencing bouts of volatility on account of uncertainty on both global scale (the US-China trade talks, sanctions on Iran, etc.) and domestic front (the outcome of general elections).
Once the uncertainty subsides, the markets would take a fresh direction driven by earnings which are expected to report decent growth over the next two year period. Hence we feel that the markets have a lot of momentum ahead.
Q: There are more stocks which have hit 52-week low than highs. Is it the time to go for a kill and deploy cash in case you are an investor for long term?
A: At this juncture, the markets are ruled by volatility ahead of the outcome of the general elections. As we approach the D-day, the volatility is likely to increase instead of subsiding.
Whatever the outcome of the elections is, the economic juggernaut of India is going to roll-on. While there could be a near term pressure, if the general election outcome is against market expectations, the inherent consumption based nature of Indian economy will keep the growth wheel turning.
Indian economy is set to double its size over the next decade. However, if there is a favourable outcome for general elections, then it would slightly cut short the time to achieve its target.
Hence, an investor should position himself to benefit from the businesses which would grow with the expanding economy. One should use the volatility in the markets to drive home the bargains.
Stagger the investments as the volatility is to persist as both domestic and global events have converged in the near future.
Disclaimer: The views and investment tips expressed by investment expert on Moneycontrol.com are his own and not that of the website or its management. Moneycontrol.com advises users to check with certified experts before taking any investment decisions.
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