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Banking, telecom on road to recovery: Navneet Munot, SBI Mutual Fund CIO

A new earnings cycle may lead to broadbasing of profit growth, which in turn will help improve the breadth of market performance.

December 11, 2019 / 08:20 PM IST

The sectors that had been contributing to large pools of losses are now appearing to mend, corporate banks and telecom being the largest two, said Navneet Munot, Chief Investment Officer, SBI Mutual Fund in the outlook report.

Munot feels the stress in the telecom sector seems to have peaked with the government giving comfort to all incumbents and following it up by deferring spectrum payments for FY21 and FY22.

At the same time, all three private players in the sector announced the intent to hike tariffs, thus raising prospects of improved financial health going forward.

"The worst appears to be over for corporate banks on recognition as well as provision for stressed assets. Normalisation in credit costs can swing large losses to significant profits possibly," Munot stated in the outlook report.

Telecom is another large sector that has been in the red given regulatory and competitive pressures.


However, recent developments such as a potential end to tariff woes and potential government support for the sector may bring about an inflection in its fortunes.

"All signs therefore suggest we could be at the cusp of a new earnings cycle. However, the strength and longevity of the cycle will depend on the ability to push structural reform," Munot said.

Following up on corporate tax cuts, the Union Cabinet recently approved The Industrial Relations Code Bill, 2019 which allows for greater flexibility to the government on the threshold requirement for retrenchment and enables companies to hire workers on fixed- term contracts of any duration.

Reforms on land and labour along with continued thrust on lowering cost of capital are also essential for reviving investments, the outlook report stated.

A new earnings cycle may lead to broadbasing of profit growth, which in turn will help improve the breadth of market performance.


Munot said that the global macro environment has turned for the better. While economic data is not deteriorating further, policy response stays more than accommodating thus leading to a ‘happy situation’ for financial markets.

The majority of central banks have resorted to monetary accommodation following a period of weak growth.

"The US Fed has not just stopped quantitative tightening but has in fact been expanding its balance sheet for the past three months. Fiscal policy is coming to aid too with the European Union as well as most Emerging Economies running expansionary budgets," the report stated.

Fiscal policy is expected to play an even bigger role going ahead.

He further said that the US yield curve which was inverted till August-end is steep again thus allaying concerns of an impending recession.

The amount of negative yielding debt which had peaked at $17 trillion in August-end has since receded to about $12.3 trillion as of November-end.
Moneycontrol News
first published: Dec 11, 2019 08:19 pm

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