Benchmarks are at all-time highs. 2018 has all been about the largecaps whereas the midcaps and the smallcap index have a floundered a little. But given the recent recovery that we have witnessed in mid and smallcap indices, would it be too early to say that the carnage has paused in that space?
It has. Overall, despite selling by FIIs, we got about Rs 71,000 crore inflows in terms of domestic money coming in and that has really anchored our markets. Despite emerging markets facing trouble — be it Turkey, Argentina, Indonesia, Malaysia, South Africa – India really stood out very strongly. We are getting a period of three to four months because of the state elections. In November-December, there could be some amount of trouble in markets going into the state elections but keeping that aside in an economic way, in a macro way and in terms of the corporate earnings recovery, we are seeing a pretty strong market.
We had a whole host of them and I want to talk on the auto space. There are enough concerns in relation to the margins picture because of the higher input cost but most on the street are saying that regardless of margins, the demand picture looks very steady and the demand environment looks very strong, Top line growth is really going to be the focus area for autos. Given the fact that every month we have seen very strong numbers come by, what is your stance for autos?
After two years of shock therapy to the economy based on demonetisation and GST, we are seeing private consumption expenditure picking up. We are seeing the rural economy coming up very strong and the expected stimulus from the government which is going to inject a lot of rural liquidity are positive for autos — from CV numbers to tractors to passenger vehicles and two-wheelers.
What has changed is everybody is out to gain market share at the expense of margin. Given the kind of valuations, these stocks were already allotted. Analysts have gone and done a bit of downgrades but the volumes will more than make up because there is a lot of operating leverage embedded in most of the counters, given that we were running at a much lower capacity utilisation than what they can really churn out.
Second, quite a few of them given the export numbers and rupee depreciation are going to see favourable winds blowing. I would still recommend buying auto as a sector.
What are you going to be watching out for next week in terms of corporate earnings? What direction would earnings take because so far I would give earnings a 7 on 10 or 8 on 10. How do you see the rest of the earnings season pan out?
I would say definitely 7 to 8 out of 10. Telecom and public sector banks were expected to be the underperformers. Public sector banks have sprung a pleasant surprise and that is why you have seen the rating also getting upgraded on public sector banks. The two-three banks that came out with results so far have been much better than anticipated. So, there could be a pleasant surprise. A rerating is going on in public sector banks. After ICICI and Axis results come out, we will get an idea on what is happening on the NPA picture overall.
Overall 20% earnings growth for the top companies put together on a consolidated basis this year looks nice. Markets will start factoring that in post the result season.
Second, is central bank action is very much centre of plate. We will have the RBI policy coming out on August 1. Given the anticipation of a rate hike, there could be some softening around Tuesday in the Bank Nifty but overall the trend is very strongly upwards and we expect more money to come in. Longs are being built up, shorts are getting squeezed.
The US GDP number on also gives an indication to the market on global growth and how is the global macro looking overall picture positive. I would say 6-6.5 on 10 overall for the market and things are looking more positive than they looked in the start of July.
What are your top ideas?
The big theme for this year is domestic consumption is roaring back. That will accelerate as the government injects more liquidity going into the national elections. So, you have to play the markets for domestic consumption and that has the whole gamut from FMCG to durables to white goods, autos, any rural facing sectors as well as the private sector banks.
The game changer now is becoming public sector banks. Let us see the results and we will get an idea on whether NPAs have really topped out in March. If that is proved right by the results of the biggies. then public sector banks could also become a very strong investment area.
Apart from that, IT will continue to do well. Valuations are not too high and we are seeing a moderation post the results which is good for the sector as a whole. New money will get attracted at these valuations. So, domestic consumption and IT will play on rupee depreciation and overall rejigging of the business models by the IT majors.