Reliance MF sees muted Q3 earnings, pick up from Q4 onwards

Despite its recent setbacks in growth, Sunil Singhania, head-equities at Reliance Mutual Fund feels India is much better off when compared to some of its peers. "If you see Brazil, they are trending towards 1 percent and Taiwan trending towards 1 percent and so on and so forth. Very clearly, we are seeing this new financial order coming into play. India definitely has a potential of standing out," he told CNBC-TV18.

Singhania believes the recent reform driven undertaken by the government has played a key role in the change of sentiment towards India. That, he says, has acted as a catalyst for long-term investors to get positive. "We think the economic scenario for India will imporve in the next one-year," he says. For the near-term, however, he does not expect Q3 earnings to be 'dramatically good' but at best muted. He sees earnings to start growing in double-digits Q4 onwards. Below is the verbatim transcript of Singhania's interview on CNBC-TV18: Q: The theme of CFA India Investment Conference is 'India and the new financial order'. India stood out over 2012 in terms of the kind of money that it has sucked in from global investors, do you think going into 2013, India will continue to be seeing as a more attractive or relatively more attractive investment destination? A: That is exactly the point. We, in isolation, look at India and we see all the problems. That is very clearly evident that when you look India and compare it with some of the other countries, India clearly stands out.
Yes, our gross domestic product (GDP) numbers have inched down from 7.5 percent to 5.5 or 6 percent. If you see Brazil, they are trending towards 1 percent and Taiwan trending towards 1 percent and so on and so forth. Very clearly, we are seeing this new financial order coming into play. India definitely has a potential of standing out. The good thing is that the reform process, which had to some extent, taken a backseat is now back in full force. That has acted as a catalyst for long-term investors to get positive. That is the theme of the conference and we are hopeful that 2013 would continue to be a good year for Indian economy and stocks. _PAGEBREAK_ Q: There has been some concern about the longevity of that money though, any debate about that on whether or not this is the new trend the fact that most countries will pull more exchange traded fund (ETF) tracked money, it will be a regional call not so much a country specific call? A: This question keeps on coming every now and then over the last seven-eight years. The bottomline is that except for a brief period, foreign investors in India have continuously been on the positive side. Even this money which we are seeing, the ETF money -- people keep on talking about all sorts of things --- is long-term money. The global trend has been to move from everything in long-only to some allocation to ETF and even in the emerging markets we are seeing that. So, our view would be that even this ETF money is long-term money to some extent. Going forward, our view is that the foreign direct investor (FDI) flows in India should also pick up. Hopefully that -- that is the view we have -- would surpass the foreign indirect investor (FII) flows that we have seen. Q: You spoke about reforms and policy has played its part in turning the India mood around over the last 5-6 months. But in 2013, do see politics coming in the way of India’s attractiveness as a destination? A: You have to live with politics, it is not only in India. It is everywhere else in the world. However, one good thing is that political parties across have realised that with a young population -- and with the voting age being reduced to 18 from 21 -- you have almost 65 percent of the electorate that is below 35-40 years of age and they look for development. So, whether you have states like Gujarat, Delhi or some of the other states, very clearly reforms and development has played an equal part as compared to some of the other traditional factors. Yes, politics would continue to be a concern as it is a case everywhere in the world. I think, the politicians and the political parties have realised that reforms and progress is the only way to go forward. So, we would not be unduly worried about it. At the same time, it definitely needs to be kept at the back of the mind because you might have a 3-4 months period where the market might try and find direction. Having said that, if you see, next one year is going to be very exciting. Whatever has gone wrong in terms of inflation, interest rates, no growth, no capex, every factor of that has a potential of moving to the positive side. I met a banker in the last 2-3 days and what he was saying is that there is clearly a pressure now for them to cut interest rates for their clients because they have started to demand it and there is a competitive pressure. That itself can improve the sentiments as well as a profitability of a lot of companies because a big portion of the EBITDA was going towards the payment of interests. Similar kinds of factors will turn hopefully on the positive front, which should aid the markets. Q: That is an additional cue of course but it boils down to the core earnings, you have a panel discussion later, I am sure you guys will discuss earnings a whole lot. What are your expectations on the earnings parameter and whether this is going to be the quarter where we see a troughing out or even a revival in performance? A: One interesting trend, which we have seen over the last few months in the market is that it is not the absolute numbers that matters but the numbers compared to the expectations. We have seen so many times when interest rates have not  been cut, yet the markets have gone up because the expectation has been more positive rather than the absolute numbers. Same is the case with earnings. No one is expecting earnings to be dramatically good this quarter. The expectations are like 5-6 percent. However, if you move ahead, the probability of earnings surprising on the upside starting from the March quarter itself is much more now than it was ever. So, because we have had a disappointing earnings over the last six-eight quarters, I think most analysts and most experts have cut down their expectations of earnings so dramatically that from hereon there can only be positive surprise. I will agree with you that probably this is one of the last quarters where we might see earnings grow less than double digits. That is our expectation. Q: Let me ask you a tangential question since we are talking about long-term attractiveness of this market. Do global investors focus only on financial and economic policy aspects because so much of this attractiveness is also about being a vibrant democracy, demographics of India etc, what is going on socially in India right now and the kind of Press it is attracting in the West, do you think that might deter or at least make some of these longer-term investors like pension funds sit back and think? A: When I used to go abroad six-seven years back, it was very difficult to find India in any of the global newspapers. Then you had the phase between 2005 and 2007-2008 where you used to have one newsflow on India which would be on the positive side. The good thing now is that one news has become two or three news and out of that two and three probably one or two are also on the negative side. The fact is that India has now become so relevant that it cannot be ignored. There is definitely this social negativeness which has been very evident. However, the good thing is that India is open about it. We do not have censorship of the Press, we can talk openly, we can speak openly. That is something which at least the developed world, the Western world likes a lot and they relate with India in terms of democracy. Historically, the democratic nations have been the most successful nations. So I think there again India stands out. Yes, there are social issues but being an eternal optimist on India, from hereon things can only improve. Even if there is a corruption from hereon, it cannot get worse, it can only get better. Technology is going to play a very important role, whether it is Aadhaar or right to information and so on and so forth, technology is going to change a lot of things in India. It might happen tomorrow, it might happen after one-two years. Q: What are your thoughts on technology and Infosys because prima facie at least this quarter’s numbers are upbeat? A: I cannot speak on Infosys. However, on technology front we are getting very positive. The only time when technology has traded in terms of valuations below the Nifty has been in 2009. After that we are seeing for the first time technology, as a sector, trading below the Nifty valuations. It is a good sector and from hereon, we would tend to be slightly more positive on technology.