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Last Updated : Aug 17, 2015 03:06 PM IST | Source: CNBC-TV18

Nifty a buy at 8000, sell at 9000; like Cipla, SBI: Kotak

On the reforms package for PSU banks anounced on Friday, Bhatia says it is just one of the steps for revamping state-owned banks and that a lot more needs to be done.


Looking at corporates earnings for the June quarter, the market will have to tone down expectations, Sandeep Bhatia of Kotak Institutional Equities tells CNBC-TV18.

He expects an aggregate earnings growth in 'high single digits' for FY16, instead of the 12- plus percent growth the market was hoping for.

"The micro is slow, though the macro is improving," he says, adding India right now has the best macro environment among in the emerging market space.

He sees challenges to a pick up in the capex cycle even as there are signs of comsumer demand reviving.

Bhatia expects the market to be rangebound for some time and feels 8000 on the Nifty is a good buying opportunity and 9000 is the time to book profits.

On the reforms package for PSU banks anounced on Friday, Bhatia says it is just one of the steps for revamping state-owned banks and that a lot more needs to be done.

He says there needs to be a cultural change and that political leaders need to stop treating PSU banks as their 'jagirs' for a real change to happen.

Among state-owned banks, he is bullish on SBI and says he will look at other banks in this space only when the economic cycle picks up.

In the pharma sector, Bhatia rates Cipla as one of the top picks.


Below is the transcript of Sandeep Bhatia's interview with Latha Venkatesh and Sonia Shenoy on CNBC-TV18.


Latha: Why such a fall? 300 points fall, what happened over the weekend?


A: Nothing happened on Monday morning is what I would say. I think the market was very excited after the last inflation read and everyone was thinking that we may have some policy announcements on Monday morning. I think it is expecting too much too soon from the Reserve Bank of India's (RBI) governor.

Clearly all they said that we have a clear path and a clear decision-making points. September 17, the Fed rate meeting is an important input into the decision-making. Probably he will wait for one more reading on the inflation number to see whether the trend still continues and even after that the reality is that even if we see 25-50 bps cut, of course it is great for the markets for the day or maybe for a couple of trading sessions after that but eventually the reality is that the earnings season that we just went through still shows that the micro is still very weak, the micro is still very slow, the macro is improving and in fact it is one of the best macros we have today in the emerging market universe and probably one of the improving macro trajectory we have seen for a long time in India. So this is all good news and great news but market is clearly disappointed that we didn’t have any rate cut in the morning.

Close

Sonia: The market is disappointed with its own high expectations, not that anyone realistically expected a rate cut. What did you make of that Indradhanush programme by the finance ministry? Do you think it could be a game-changer for the public sector undertaking (PSU) banks anyway and would you recommend buying into these names?


A: It is definitely very well and I would think that this is a very good effort. The public sector banks dominates the Indian banking system, they have been straddled with all the bad assets in the infrastructure, they are a complete mirror image of the highly leveraged corporate balance sheets we find in the infrastructure sector, the mirror image of that we see here in the public sector banks mostly.

If you look at the last numbers which have come through, we have put out a detailed note post Q1 earnings, which came through and clearly the loan growth in the public sector banks is 6.5 percent, on the flip side, the private sector banks take the cream of the profits, their loan growth is 19 percent and we cannot have a lopsided system. Anyone who looks at this, we cannot have one limb, which is strong and growing and the rest of the body not doing well, which is the case of the Indian banking sector and this is one of the first things that needs to be done.


In India unfortunately, politics most of the time comes over good sense and economics. This is what we saw happened in the parliament. Clearly the opposition there is fighting for its own survival, most of them think that if they don’t do what they are doing, they will have to close shop and go away and clearly in the economy, there is still going to be some more time. I would think that what is happening for the public sector bank and Indradhanush is just one bit, a lot needs to be done, a top down cultural shift on not looking at the banking universe as jagirs of the political masters that may be ruling the country at that point of time and much more professional culture needs to be put in place and this is just one of the steps and it is just the first step I would say.


Latha: You are not buying them? Are you buying any of the PSU banks?


A: We like State Bank of India (SBI), we will stick to that. That is clearly one of the bellwether names, it will benefit from the cut in rates that will happen. It is definitely one of the better capitalised banks. As far as the other banks are concerned, we will wait for cyclical pick up. We want to see some resolution of what is happening on the balance sheets of the infrastructure companies before going whole hog on the public sector banks.


Latha: What did you make of the earnings season itself? The last bunch of numbers we got were quite horrendous. The ones we got on Friday, Saturday, Sunday -- the likes of Amtek Auto, Punj Lloyd, BEMLPipavav, what is your comment generally this earnings season, no downgrades?


A: Of course, we started the year with expecting a 17-18 percent kind of earnings growth, now we ended this earnings season with 12.5 percent earnings growth for the market. Even there we will see further earnings cut come through after the October result season is over and behind you. So let us wait and see, we will probably settle for a high single digit kind of earnings growth for the corporate sector in this current year and that is where we are.


There are clearly challenges coming through both on capex -- there is some improvement I see on the ground, in some results we see improvement coming through in terms of consumer demand but it is still very early days and it is where we are, we will see some earnings cut come through further and even our 12.5 percent earnings growth for the indices is probably going to be cut to around 9-10 percent but I genuinely don’t think that the market will trade-off sharply, today is probably an exception because we started with some inflated expectations as you mentioned. However, this market is a rangebound market, this is a market definitely worth buying at 8000 on the Nifty and 9000 on the Nifty is clearly a sell point in my view, at least for this year.


If we see the passage of legislation, which is a very big if, people assume that legislation would get passed and now there is a reality check but more importantly let us wait and see what it the outcome of the elections in the state of Bihar. The opposition has all come together despite their differing agendas, despite their differing personalities, everyone has put in one last effort, so let us wait and see how the electorate votes and how the arithmetic of the seats finally tally up when the results are out.


That as I said politics mostly trumps over economics and good sense in India, so if India is lucky on the politics again and if we see a good outcome in the Bihar election for the Bharatiya Janata Party (BJP), then there would be more push and passage in legislation and that would be a good thing for the market and the market can easily trade up if the elections go BJP’s way by the end of this year.


Sonia: What would you do with the pharmaceutical space now, what are your top picks in that space and how do you approach stocks like Cipla that have delivered good numbers but the stock is down about five percent?


A: Cipla's management has delivered a kind of earnings trajectory that we had expected and this is still one of our top picks, it is a sector which has done very well, valuations are very high. Cipla continues to be one of our top picks in the pharmaceutical sector.


Again it comes down to the same limited point, do we just look at some private sector banks, do we look at some pharmaceutical stocks and we would look at the selected auto stocks or we would look at anything else other than that, so right now I would still continue with the broad themes -- stick with the performers, stick with those where management has a track record of delivering.


Latha: The manner in which the rupee has performed as well the manner in which cyclicals have not performed, is there a case to stay defensive IT and pharmaceutical?


A: The rupee is basically a derivative of what is happening in other emerging market currencies. Per se the Indian macros have improved tremendously in the last one year. We have got very good benefit from the commodity fall, which we have experienced, we saw that in the margins expansion happening. I would continue with IT. This is clearly benefitting from slightly weaker rupee but is still stronger than most emerging market currencies.


In fact if you look at one of the tables that we pointed out in our report, essentially the Indian market has significantly outperformed the entire emerging market universe. In fact the MSCI Emerging Market universe is down 17.5-18 percent for the last three months and India is clearly flattish which is a great outcome. So, I would think as far as the defensives are concerned, IT is a good bet going into the second half of this year till February, March and after that we will wait and see how the politics and how the policy and legislations have moved in the interim.



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First Published on Aug 17, 2015 09:59 am
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