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Last Updated : Sep 17, 2018 09:26 PM IST | Source:

Udayan@Moneycontrol: Serious derating of NBFCs on the cards; sugar is rubbish

Udayan said the big worry among investors now is rising interest rates, as bond yields have hardened.

Moneycontrol News @moneycontrolcom

The measures announced by the government over the weekend to stabilise the rupee is unlikely to make a big difference in the near term, CNBC-TV18 Consulting Editor Udayan Mukherjee tells Moneycontrol Editor Santosh Nair.

"While the government might do a little bit to filter the volatility in the rupee-dollar market or to slow the pace of decline it cannot usually reverse the directional move of the currency, because a lot of things are acting against the currency right now and this is a global phenomenon," Udayan said.

"Crude is still strong and that is another big headwind against the rupee. The government because it is an election year, is not going to do much to tame down its fiscal deficit," he added.

As long as those deficits fundamentally did not reduce, the rupee-dollar would remain under pressure, he noted.

"The government will probably undertake some more measures, maybe some import controls etc to try and rein in the pace of depreciation of the Rupee and that might have some temporary impact, but broadly the path of the rupee-dollar still remains down and we should not believe that the government has a magic wand with which it can turn everything around," Udayan stated.

Foreign investors are unlikely to be attracted to India when they are bearish on emerging markets as a whole, he stressed.

Inflows into local mutual funds will be crucial to market performance, he said.

If mutual funds continued to witness around Rs 5000 crore of inflows through systematic investment plans, and foreign funds pull out a billion dollars a month, the pressure on stock prices will not be much, he said. The Nifty could then trade in a range between 11,300 and 11,800.

But if money flows into mutual funds dry up and foreign funds continue to sell heavily, then the Nifty could retreat all the way to 10,700-10,800, he said.

Udayan said the big worry among investors now is rising interest rates, as bond yields have hardened.

“It (rising bond yields) will also prompt banks to raise interest rates very soon because of the way of funding is working out.

I see a serious derating of the NBFC sector, particularly the ones which belong to housing finance which are wholesale funded and which have anything to do with the stock market in anyway, So NBFC goes on top of the derating list,” he said.

In addition, the losses in their bond portfolio would affect the profitability of both private sector and public sector banks.

"I fully believe that 2019 expectations from PSU banks and from corporate banks are way too elevated which will bring down the overall Nifty earnings possibilities, market earnings possibilities for FY19 – so be careful about those sectors," Udayan said.

He is wary of auto, real estate and consumer stocks as well.

"Sectors like auto might begin to hurt a little bit on the margin because valuations have run up quite a bit there. You could see some tempering in real estate stocks though that is not hugely owned, but some of the consumer facing stocks can actually shed some of the very lofty valuations that they are trading at," he said.

Udayan is bearish on sugar and says that investors should not be tempted to buy into the recent rally.

“In my eyes it has always been a completely rubbish sector. I have never been an advocate of long term investors looking at sugar. Sugar has usually a bear market of four to five years and then a short bull market which is essentially a very speculative bull market of about three to four quarters,” he pointed out.

According to Udayan, the bull market in sugar is over.

"We are staring at a massive glut in the sugar market which will not be compensated by extra production of Ethanol. The dynamics of the sector are poor, the managements are not great. It is a sector which gives you a trading opportunity every three four years, that window was there, but it has shut now," he said.
First Published on Sep 17, 2018 08:18 pm
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