Amit Khurana, Co- Head Equites & Head of Research, Dolat Capital Market giving his broad outlook on the market remains positively biased on the overall trajectory of the market but the house currently has more stock specific outlook than sector specific and therefore its more of a bottoms-up approach.
With respect to earnings, he believes the market is at the fag end of the downgrade cycle and rerating will only on strong evidence of earnings pick up than just hope.
From the reported earnings, Infosys did disappoint on the guidance front but the numbers surprised positively but expects TCS to report better numbers in terms of volumes but may be impacted in terms of cross currency, says Khurana.From the consumer staples, he prefers ITC over HUL from a 12-18 months perspective. He expects HUL would post a mid single-digit volume growth for the quarter gone, which have been built-into the valuations already. For the metals, he thinks the bounce back is done for now and the next trigger will only be post stabalisation of global growth.From the banking space, he prefers the private banks over PSU banks and don't see significant re-rating for PSUs.
Below is the verbatim transcript of Amit Khurana's interview with Anuj Singhal and Ekta Batra on CNBC-TV18.
Anuj: A word on Infosys, in fact the entire tech sector. How would you approach it after the numbers from Infosys yesterday and the kind of reaction that we have seen?
A: The numbers did surprise us on positive side. We were little more muted on the numbers running into the earning season. So, to that extent it does help but what disappointed us in context of that was the guidance was not upgraded to that extent. I think that probably is a reflection of as to how the Q3 might be a little bit muted then what was our earlier expectation.
So, overall I would say that the numbers were a little bit of a positive surprise on Infosys. However, from a relative perspective I would still believe that Tata Consultancy Services (TCS) would probably report better numbers especially on the volume front. It may get impacted on the cross currency movement but we would expect TCS to do relatively better than Infosys.
Ekta: One of the things that we were hearing before you joined us was the SpiceJet interview and the IndiGo initial public offering (IPO) which is on the anvil. We have in fact Café Coffee Day which is opening as well tomorrow. What is your thought on both of them and would you be telling your clients to possibly subscribe to either or both?
A: We do not have a formal stance for IndiGo as of now but Café Coffee Day; I think our stance is a little bit on the negative side in the context of the overall other businesses which are reflecting as a bigger part of the valuation process. Therefore we have slightly negative stance on that.
Anuj: What is your call on the market overall, you deal with a lot of foreign institutional investors (FIIs) especially in the derivatives market, we have seen a lot of index futures buying of-late, what is that indicating about the overall market scenario and how are you placed on the market?
A: Our sense is that we have gone through a whole cycle of resetting of the expectations over the last few weeks. We believe that was very much in the offing given that most of the earnings sort of the revisions was on the downgrade side. We believe that we are more or less at the fag end of the downgrade cycle. We believe that the markets will now re-rate only on a very strong evidence of earnings picking up rather than just hope; which was the move that we have seen over the last so many months.
However, we remain positively biased on the overall trajectory of the market and having said that we are more stock specific rather than sector specific. Therefore our approach towards allocating portfolio is more driven by the bottom-up approach and that is where our stance is reflecting the way we are picking and recommending our preferred picks._PAGEBREAK_
Ekta: We have Hindustan Unilever (HUL) which is coming out with its numbers tomorrow any estimates in terms of volume growth as well as the overall picture for HUL and would you be buyer?
A: We are expecting a sort of a mid single digit volume growth for Unilever for the current quarter. We do believe that the valuation fairly well captured that in the estimates as of now. Therefore, our preference for sometime has been in favour of ITC than Unilever given that ITC quotes at quite a reasonable discount now and is probably bottoming out of the volume numbers for FY16 number. So, from 12-18 months perspective ITC has been our preferred pick on the consumer staple space so to say.
Anuj: We have seen a big rally or big short covering bounce rather in metal names like Vedanta, Hindalco Industries and Tata Steel as well. Is it a space that you like or would you say that the short covering bounce is done?
A: I guess it is more or less done. We did have a tactical sort of a quick trade in-trade out positions sometime back when the volatility was quite high and some of these stocks had really come off quite sharply. However, I guess having a bounce back some of them as high as 25-30 percent from their lows; we are probably done for the moment.
The next trigger will come in only when we see the entire growth picture at the global level. So, unless we get to see a few months of data as to what the new normal for the China growth is and what the new normal for the global consumption data is, I think these stocks will probably be in a range. So, as of now I would probably say that more or less the bounce is done for the metal stocks in general.
Ekta: What are you expecting from a couple of these rural focused stories in light of the fact that the monsoon will be possibly impacting collections etc especially this quarter say for example Mahindra & Mahindra (M&M) Financial. Last quarter was quite bad for them. Do you expect the pain to worsen this quarter maybe improve?
A: We do not have a formal stance on that space as such but in general we believe that the worsening of the picture may not be as much as is there in the consensus number. Our sense is that the monsoon may look like a 12-13 percent shortfall versus long period averages but I guess the distribution or the timing is something that was not that bad.
Therefore, our stance is little different versus the market consensus which seems to be quite negative about it. We are probably; I would say less negative or less sort of concerned about that imitating into the company’s performance for the current quarter.
Anuj: What about the banking names? Bank Nifty struggling a bit even though it has seen a bit of a rally but clearly at higher levels there are selling pressure whether it is public sector undertaking (PSU) banks or private banks. Any picks in this space?
A: Our preference remains for the private sector banks. They were the ones which have taken the maximum brunt in the corrections and therefore that makes us more positive on that even in that context that some of them are now quoting at close to 1.4x-1.5x price to book FY17 numbers. I think that is a very fairly attractive level for some of the private sector banks to one to start making allocations.
Public sector undertaking has been a slightly of a disappointment for us. We keep on hearing news flow in terms of the steps what the government is going to take on various fronts. I guess the whole hypothesis that we are working on, the hope trade is probably over now and it is actual evidence that will drive these banks now especially the PSU banks.
Unless we see a significant resolution of the issues around the NPAs, the distribution companies, whole lot of other general economy picking up, I don't see a very significant rerating of the PSU banks over the medium-term. Therefore, the preference is to stay invested in the private sector banks which have corrected quite meaningfully, some of them, and therefore will have a better return potential over the medium-term.Disclosures: We are advising our insitutional clients on all the sectors discussed and may have holding in some of the sectos discussed today.
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