Cautious and tepid commentaries by several corporates raise concern for the further earnings downgrades. Thus Q2FY20 is also expected to be muted with a visible slowdown in discretionary spending all over, Yogesh Mehta, founder of Yield Maximisers, said in an interview with Moneycontrol’s Kshitij Anand.
Edited excerpts:
Q: Domestic and global cues point towards a possible recession across the globe which could, in turn, affect India's growth story. What are your views?
A: Fear of slowing US economy is rising day by day and the data also indicates India can’t remain immune for a longer time if the situation of the US and China trade tension intensifies further.
The new monster of inversion of yield curve emerged in the US bonds may see the ripple effect of slowing down in FII investment inflows in India that can be seen as not encouraging for Indian markets.
Q: How did India Inc. fare in the June quarter earnings?
A: Q1FY20 corporate earnings disappointed the street, Nifty PAT grew merely 5 percent YoY, compared to an estimate of 12 percent.
Cautious and tepid commentaries by several corporates raise concern for the further earnings downgrades. Thus Q2FY20 is also expected to be muted with a visible slowdown in discretionary spending all over.
Q: Top five outperformers and underperformers from the Q1 season.
A: Outperformers UltraTech Cement:
UltraTech Cement reported an all-time high EBIDTA growth led by realisation beat and deleveraging focus.
Asian Paints: With 24 percent EBIDTA growth aided by high double-digit volume growth, this stock stands out as a clear outperformer.
Sun Pharma: EBIDTA growth of 24 percent was largely in-line with US sales. Ilumya is gaining traction and normalise R&D spending from Q2 will support the stock.
Zee Entertainment: The media company reported 47 percent YoY jump in the domestic subscriptions with expansion in margins, which is a positive sign.
Underperformers: Tata Motors: The global automaker disappointment the Street, weighed down by sharp margin contraction in JLR and India business, and even guidance was revised down to 3-4 percent for FY20.
ONGC: PAT was down due to one-off provision and higher interest cost.
SBI: Higher credit cost and higher slippages.
Tata Steel: Weak margins, weak outlook and capex cut by 25percent. The net profit was down 53 percent.
Q: FIIs have been pulling out money from Indian markets consistently since July while MF absorbed most of that selling. But, do you think the momentum will continue?
A: FIIs sold equities worth Rs 15,000 crores in July. Nifty corrected about 8.5 percent from all-time highs of 12,103.
FII selling momentum may continue if current economic pressures and weak earnings persist.
Q: With global recession looming large, gold is all set to clock Mount 40K on MCX. Do you think it is the right time to invest in gold or gold ETF?
A: The way US-China trade war is getting intensified, due to tumbling bond yields they are no more attractive, hence, gold is catching momentum as safe heaven (asset class). If INR weakens further and international gold price rises further one can still invest in gold.
Q: Auto sector has been under pressure with more firms opting for shutdowns. Do you think this sector could produce wealth creators if someone buys the stocks at current levels with a time frame of 2-3 years?
A: Demand for auto has tapered down and the auto index is back to its 2014 levels which are providing an opportunity for investors but at current levels, it is like a half glass full and half glass empty.
However, with 2-3 year timeframe, staggered investment in the leaders of the sector is recommended but not as a wealth creator.
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