'Mkt not ready for earnings letdown; churn portfolio'

The upcoming second quarter earnings season may be a mixed one and given the current scenario, the market is not prepared for disappointing results, says BP Singh, Pramerica Mutual Fund. He expects further downgrades during earnings season.

"Currency depreciation witnessed in the last quarter has not been priced in yet. Some corporates will be in serious trouble in terms of balance sheets and profit and loss account. Results in October will give two extremes, there will be some plays that will see huge outperformance and some may see huge underperformance," he explained CNBC-TV18 in an interview. So, he suggests investors to not take one way positions and focus on churning portfolio whenever an opportunity arises. “This is trading market, don’t just buy or sell, one will have to keep shifting between the sectors,” he added. Rupee is likely to weaken further given the challenging macros, so one should bet on companies which are likely to benefit from rupee’s fall and are less leveraged, especially, forex leverage. Below is the edited transcript of BP Singh’s interview with CNBC-TV18 Q: What is the sense you are getting or rather what are you doing with your funds, are you selling into this rally? A: Actually in this market you can't take a one way position of selling or buying because it is quite a trading market and therefore one will have to keep shifting between the sectors. Now just as the market is currently dependent a lot on the global events, the local events are also staring us - results will be announced in the next month. Now in our opinion the market at this point in time is not prepared for the kind of results which are going to be reported. Because if you look into most of the analysis you will notice that the analysis is not yet factored in, the kind of currency depreciation which we have witnessed in the last quarter. There are going to be lot of corporates who are going to be in serious trouble in terms of their balance sheets and their profit and loss account. We haven't seen those kind of downgrades yet. Simultaneously, companies who are going to benefit out of it also is not seen yet. Results in October will give two extremes, there will be some plays where there will be huge outperformance and in some plays huge underperformance. That actually presents an opportunity to go around and trade. We are exactly focusing on that. We are trying to capitalize the gaps which exist and not take one way positions because currently US is going through a debt ceiling activity and I agree that the ceiling will be enhanced, but the amount of give and take which takes place before that, creates a huge amount of uncertainty. We will see a global factor actually running negative, but at the same time locally there will be opportunities available. Q: When you talk about opportunities what is at the top of your mind, what would your advice be to investors at this point? A: Our advice is very simple. It is that continue to focus on companies, which are going to benefit out of currency depreciation because currency weakening is not going to go away so quickly. In the last two months of our activities, we have definitely put our house in order trying to make an effort to do that but nothing substantial has been done, which will start reversing what we have witnessed in the last three-four months. We will have to accept and live with the fact that this scenario, which is going to be presented to us in the next three-six months, will not be very easy. We will continue to have weak currency, tight liquidity kind of scenario, which might result in some kind of credit problem in future. India is not the way the global markets are where credits are priced differently. Here, credits are almost priced similar and in that kind of scenario, the bad credit stops getting any liquidity. That presents a credit crisis kind of situation. We will have to be mentally prepared for that and accordingly run our portfolio in this situation. Focus on the companies, which are cash rich, less leveraged and more importantly focus on companies, which have less forex leverage.