Fundamentally at a PE of 28 times, the Nifty is not exactly cheap and recent earnings may look optically better on account of the corporate tax cuts, said Rajmohan Krishnan, Principal Founder & Managing Director at Entrust Family Office Investment Advisors during an interview with Moneycontrol.
Q) What are your thoughts on the current market scenario and is the current rally justified given fundamentals?
A) The markets have rallied based on expectations and some of those have been met like privatisation. Globally, there are news items on the trade war that have also influenced markets. So a lot of market moves are news-based and on the expectation of reforms. But the economic cycle could still have some more bad news like a possibly sub-5 percent GDP number for September. We could have started a journey but maybe the pace is too fast and there could be speed breakers.
Fundamentally at a PE of 28 times, the Nifty is not exactly cheap and recent earnings may look optically better on account of the corporate tax cuts.
Q) Lot of buying has taken place in several under-owned stocks this week like pharma, PSU banks, etc. What are those under-owned sectors and stocks which could still see buying interest despite market trend?
A) This could again be on flows as you point out and recent news like the Supreme Court clarification in the NCLT case. Latest results give an indication that the old NPAs are nearing resolution and fresh stress from them could be less. Flows also have been positive given global liquidity. One can be constructive on such under-owned sectors.
Q) Asset management companies like HDFC AMC and Reliance Nippon continued to hit life highs. Do you still feel these stocks have a lot of potential upsides and why?
A) There is a feeling today that buying quality names and well-managed companies with high corporate governance standards is a good idea. We would not comment on specific stocks but this appears to be the theme. So it is a useful filter to have especially in these times where there is so much uncertainty.
Q) Do you think clearing regulatory hurdles in banking space and solving long-pending debt cases will help propel markets?
A) This is long pending and we have been through several iterations where we felt things have stabilised but they again got delayed. The resolution process which is dependent on judiciary will take time and there are multiple stakeholders whose interests need to be aligned. But this is a good start and this needs to happen not only for the banking sector but the economy as a whole.
Q) As an investor, will you start investing in PSU banks over private banks after Essar Steel case resolution?
A) This clarification was long overdue. In fact, it has taken more than two years where the economic fundamentals could also change. But, if it is a sign of things to come, it is good. PSU Banks have not been able to lend to important sectors of the economy because their focus had been on bad debt resolution. If now their bandwidth opens then its good not only for them but for a whole set of borrowers who are finding difficult to raise money.
There was a palpable sense of relief across corporate India when the Supreme Court gave its stamp of approval to ArcelorMittal's takeover of the troubled Essar Steel under the debt resolution process of the Insolvency and Bankruptcy Code (IBC). In a big victory for the three-year-old legislation, the court upheld the principle of financial creditors having primacy over unsecured and operational creditors.
But, this victory has come after a long wait. At 841 days and counting, Essar Steel has taken way above the mandated timeline of 270 days to close a case that has come for insolvency. In the meantime, commodity prices have tempered, lenders lost more than two years of time value, while the new buyer had to lock in the capital (that remained idle) for a long time.
Q) Is it the right time to buy telecom stocks especially after the government's assurance of keeping three private players and one public sector player?
A) Telecom is a very complex sector. In fact, we were talking about the very survival a few days back. So we would prefer to wait and watch for clarity to emerge.
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