Don't see earnings growth in next 2 qtrs; like banks:UTI MF

Anuj: First your call on this market. You have seen quite a bit of weakness and the earnings season quite clearly is showing some bit of disappointment. Is it a buying opportunity or will the markets correct post the earnings season just to adjust for valuations?

A: If you look at earnings first, we have had this phenomenon for the last few years that we start off very close to beginning of the year with a certain number in earnings and then you have downgrades through the year. In a sense it is typical of a bull market. We have seen that in 2003 and 2008 rally also that you have these phenomenon of sentiment running much ahead of what is actually happening on the ground.

We have mentioned that even in the past that sentiment does tend to rush up ahead of what is happening on the ground in earnings and then tends to correct and then the earnings come back to support it. We are more or less seeing something like that in today’s market.

So, maybe for the next couple of quarters earnings are unlikely to show anything because if you look at toplines and volumes of most companies, there is no activity. If you are waiting for government to do a lot in terms of capital expenditure which will then pull private expenditure in, then you will have to wait a little bit more.

So from an earnings perspective there is nothing going to happen in the next couple of quarters. If that is something you can look at in terms of buying opportunity for the next two years but if you are looking at the next months or so it is a very difficult call to take. My sense would be that the markets are not going anywhere for the next month or so.

Ekta: In anticipation that investors can possibly some pick up some key bluechip stocks from a two year perspective do you think that they should wait a little longer to see maybe a further correction in the markets?

A: I think timing is a very difficult game, at least we don’t play it. So, if you like a stock and you think cyclically it is placed well in the cyclical recovery, you think there is growth out there and it is going to increase its market share, it has the balance sheet to do it, it is definitely worth buying.

Anuj: What should be your portfolio stance, we have seen correction in banks, we have seen correction in IT and now we have started to see correction in pharma stocks as well. Which among these three big sectors would be your top overweight right now?

A: Banks definitely will lead the cyclical recovery perhaps more private sector than public sector. We would continue with IT and pharma because the global situation is at the subterranean level is still a little volatile. On the surface things look calm but anything could happen in Greece.

The US Fed, the way it is going to move is not so predictable as people think at least that is what we have learnt from tapering, etc. So, there is need to be exposed to some sectors which have an export focus and to that extent even pharma and IT are good. Cement is also looking quite good.

Ekta: Within the banking space what would you prefer at this point in time say PSU banks just based on valuations or private banks even though they are little more expensive you have the comfort of maybe sustained asset quality which you have seen in the past couple of quarters?

A: We will definitely go for private banks. Among the public sector banks maybe a couple of large banks with a very strong system and long history; perhaps we would look at those. However, apart from those exceptions largely it would be private sector banks.

Ekta: Would you have a view specifically on maybe the broader markets and what your portfolio stands or your mix would look like within the broader markets as oppose to just the frontline stocks?

A: I think the midcaps and smallcaps have moved up in terms of valuations. Now they have to deliver on earnings and that is the reason we are seeing some disappointments in some cases and some stocks being thrashed. Now, if they genuinely have underlying fundamentals, they are stocks we need to hold on to. On the other hand if they are stocks which are basically the flavour of the season then one needs to be wary.

So, it is probably a good time to look at the portfolio and look at what is there in it, where there is really something out there in terms of growth and growth outlook and where the company is at a competitive advantage and that is the stock to hold on and the rest probably you don’t need to look at.

Anuj: From whatever you have seen of IT earnings, what stands out because you have seen fair bit of correction now in the major names and we still have to see Infosys numbers but is the correction good enough and not in terms of individual stocks but would you prefer largecaps over midcaps or would you prefer midcap IT over largecaps?

A: If you look at valuations, there is definitely more scope in laregcaps. The results which have come in till now, they are bit of a mixed bag in the sense that different reasons attributed to different performances. So in somebody’s case it would be a particular vertical, in somebody else’s case it could specific investments in new markets. So, it is not really the same thing which has happened in these companies.

There is a question mark a little bit on the growth and on the topline number but that was something the market knew. It was not that the market was totally unaware of them disappointing. It is like people come up with an earnings estimate and then they are reasonably certain that that it is not going to be met. So I don’t know how it is an expectation but that is the way our market works.