Mustafa Nadeem, CEO - Epic Research, gave an exclusive interview to Moneycontrol.
We do expect some more measures from the Reserve Bank of India (RBI). Apart from the repo rate cut, there may be the usage of various tools RBI has as pointed out in the meet to curb the liquidity pressure, Mustafa Nadeem, CEO - Epic Research, said in an exclusive interview to Moneycontrol's Sunil Shankar Matkar.
Q: September quarter earnings season will begin this week. What are your expectations on overall earnings season? Do you expect more upgrades than downgrades or vice versa?
We don't see any upgrades on the basis of results in the September quarter as it may be similar to Q1 while we do expect some deterioration in earnings, given the fact that the last quarter has seen some of the most negative news and numbers. There has been a widespread slowdown in automobile space and the GST numbers were very low. To add to that, we have seen liquidity crunch expanding. So we believe it would be more like a muted quarter where we may see a decline in autos, metals, infrastructure and consumer durables. We believe there is a polarization in Nifty index, and only banks may see some sustainability while that number is like a count on one hand.
Q: The RBI cut repo rate by 135 bps in 2019 and the transmission of the same has been very low against RBI expectations. Considering the big repo rate cut in 2019 and the lowering growth forecast by RBI, do you still expect more cuts in coming policy meetings?
There has been a lag in the effect of repo being passed on. Usually, it has been four-five months, and we believe RBI may take time now to reconsider before any rate cut as it would like to see, after a rate cut of 135 BPS in a year, how much is passed on. That is what we have heard from the RBI commentary as they are focused on boosting the growth despite lower predictions.
We are very near at lower bounds where we have seen repo rate being cut to the levels it was in 2009 and 2003. So we do expect some more measures from the RBI. Apart from the repo rate cut, there may be the usage of various tools RBI has as pointed out in the meet to curb the liquidity pressure.
Q: The market sentiment hit by several negative news flows last week, do you expect the sentiment to remain weak in earnings season and market to fall below August lows?
The earnings season would bring a lot of volatility. As the numbers come out, we would see a lot of stock rotation. Sectors will either be adding strength or momentum, or further getting weak. All the negative news flow we have heard in the last one week or maybe months about lowest sales, declining credit growth, lowering GDP forecasts is going to have their own impact while it may be balanced by a reduction in corporate tax on the other side.
The point here is that we are in a correction phase or, to be specific, a rangebound phase. It has been so for more than a year now. The corporate tax event may have safeguarded present August lows for a while and it (August lows) may sustain for the coming month or two, but we are in a rangebound market i.e 12,000 - 10,000.
Q: What should be one's strategy at this point in time as sentiments are still weak? Should one be with midcaps/smallcaps or largecaps?
One should be very well diversified at this point in time. The value is out there in markets and it is very stock specific. The momentum we have seen in the last five years, which was very common earlier, is now very hard to find. So, if you are an investor you can look at various options such as SIP, Mutual Funds, or SEP. Largecaps are good for the long term. Midcaps and small caps are the stocks that add that cherry on them with growth in two or three-digit returns. So, you have to have a good mixture of them.
Q: What are your top four ideas which could give maximum returns when the market starts its actual uptrend on the technical ground?Get access to India's fastest growing financial subscriptions service Moneycontrol Pro for as little as Rs 599 for first year. Use the code "GETPRO". Moneycontrol Pro offers you all the information you need for wealth creation including actionable investment ideas, independent research and insights & analysis For more information, check out the Moneycontrol website or mobile app.