Markets have been range-bound or a little cautious about moving further from these levels given the lack of any near-term trigger. What is your take on the trend? What would be the strategy you are advising?
Post the second quarter results, we are witnessing a lot of churn in the stocks which have either given good results or have given strong guidance away from stocks which have generally not performed well. You are witnessing that churn and it has resulted in the market moving sideways. Once this phase is over, the market will start to trend upwards. Much of the bad news, particularly that related to the economy, has been digested. On a forward earnings basis, there will be a substantial recovery happening both on the economy as well as on the corporate earnings front. Therefore, the market should go up. You are also seeing certain signs of a revival in the IPO market which is generally termed good news for markets ahead.
Why are you confident that markets will inch higher from here? Yes, they have made a base but it could be the top and not the floor, There is nothing going the market’s way and just when we thought that globally things were looking strong, there are clear indications that tariff war or trade war will come and haunt us again.
Let me clarify on the global front that you talked about. The global economy is recovering quite sharply and much before our economy is recovering. Look at the US GDP numbers released for the quarter of September. They have been quite strong. They have been growing upwards of 2%. That is a strong number and if you look at that from a liquidity point of view that is getting provided by the Fed with its recent stance of reducing interest rates, the flow is ample. That is what is being seen as far as our markets are concerned in terms of reversal of FII flows.
We had FIIs becoming net sellers around the July period and they are a huge buyer market. So number one, that gives confidence that the markets will trend up, backed by ample liquidity coming from the foreign funds. The second reason for confidence is that some of the corporate earnings are reviving, partly thanks to the corporate tax reduction that the government has announced. That is obviously aiding growth in corporate earnings. The third reason is, as far as India is concerned we have gone through this phase of a lot of political developments. We had the general elections earlier in the year. We had the recent big state elections concluding. We should be in a phase where there will be stability of policies providing room for growth.
Despite the churn, quality continues to the favourite theme of the market and therefore we are seeing that despite poor sales numbers, Maruti is not falling and telecom companies reversing fall. Lastly, the trade wars may continue but we do not see any further trade disruption.
What should one do with YES Bank?
So many names are floating around and we have not seen the actual capital raise happening in YES Bank in a big way. The story has been playing out since February. So most clients are already fed up in terms of the stock really recovering. From our perspective, we are generally advising clients to stay away from YES Bank, that means not to make fresh investments in the bank stock. As for those who already had holdings, we are telling them to try to trim it as far as possible.
One of the ways to tackle risk in the markets is to stay away from the markets and that is in a way what our advice would be. And as far as opinion on the bank is concerned, there is nothing wrong as far as the bank’s operations are concerned and the way it is functioning. The only concern is if there is no capital raise, there is a question mark on survival. The capital raise has to be substantial and therefore we are just awaiting that trigger. Once that trigger is in place. we would be giving advice for investors to have a relook at the bank.
We have been selective on the NBFC sector for some time. In fact, we have never picked Bajaj Finance as our call from a fundamental perspective
In case of NBFCs, wheat is getting separated from the chaff but the separated wheat now is looking very expensive?
They have been expensive. Gone are the days when NBFCs were cheaper. That was three years ago. Most of the NBFCs that have outperformed recently are the ones where a fresh investor would be hesitant to get into because of the expensive valuations. A few are in fact, valued much higher than some of the steady banks, who have a long vintage behind them and are far better franchises than some of these NBFCs. So we are very selective here.
We have been selective on the NBFC sector for some time. In fact, we have never picked Bajaj Finance as our call from a fundamental perspective because the traders trade in Bajaj Finance on an intraday basis. But the moot point here is that we have very few NBFCs that we recommend; one of them is CanFin Homes. CanFin Home has had its patches of ups and downs but that is one of the steady growing NBFCs that we like.
In the past, Chola fitted the bill for us and we had included it in part of our model portfolio that we recommended to our clients in the past. We were selective and we are continuing to remain selective on the NBFC space. I do not think it is time to get into any of the NBFC names just like that.
Anticipating markets to move higher, would you still be looking at financials and consumption? Where would your focus be?
One of the distinct sectors which can potentially do well is the automobile industry where recovery is coming through. One can take selective bets on the automobile companies.
But having said that, the flavour right now is about deals that are happening both on the IPO side as well as on the M&A side. Some of these deals would mean better valuations coming in for some companies. Then PSU divestment is coming up and obviously BPCL, Concor kind of companies are going up. There is room for those companies to go up further and we will focus on that aspect which is the deal making aspect of the market which is not really sector specific.
I did name automobile as one of the sectors and of course, BFSI is another which will continue to be the bread and butter for the market, even on its way up. You have to remain in banks or be a little overweight in some of the banks.
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Despite a churn, quality still market’s favourite theme: Mahantesh Sabarad, SBICap Securities have 1359 words, post on economictimes.indiatimes.com at December 4, 2019. This is cached page on Talk Vietnam. If you want remove this page, please contact us.