ET OnlineIn the last one year, compared to other assets classes such as gold, real estate, fixed deposit etc., equities have generated good returns and are expected to continue to outperform going forward as well, says Lalit Thakkar, Managing Director - Institution, Angel Broking Pvt. Ltd. in an exclusive interview with Kshitij Anand of EconomicTimes.com. Excerpts:
ET.com: After a muted March, how do you expect April to pan out for investors? Is the market expected to head lower given earnings disappointment from Q4?
Earnings of India Inc are expected to be a mixed bag in Q4. Due to this, we expect some volatility in the market. In my view, any correction in the market should be used as a buying opportunity.
ET.com: There is one trend that we have witnessed in the month of March and that is 'sell on rallies'. The Indian markets are selling off on an intraday basis whenever there is any kind of good news. Does that worry you? And, will April be any different?
Global headlines have dominated market sentiments in March. In my view, fear of near-term interest rate hike in the US kept the markets in jitters through March. I expect the markets to draw comfort going forward from a dovish US Fed, which is expected to go for modest rate hikes only, later this year, to counter the impact of a very strong dollar caused by easing in the Euro zone and Japan. I also expect the markets to gain from dovish stance by the RBI which is expected to embark on an extended monetary easing cycle.
ET.com: Mutual funds are buying heavily into the market after remaining net sellers for two-three years. Do you think retail investors are making a comeback with vengeance after burning their hands in the 2008 financial crisis?
I expect retail investors to participate in the market, given the strong outlook for the Indian equities. The recent offer for sale of Coal India generated a good response from retail investors and the stock price of the company has appreciated post the issue, while the upcoming IPO of Inox Wind is expected to do well as well.
This will likely boost retail investors’ confidence. In the last one year, compared to other assets classes like gold, real estate, fixed deposit etc., equities have generated good returns and are expected to continue to outperform going forward as well, taking a longer-term perspective.
ET.com: From an earnings perspective, where do you see the surprises and the disappointments?
I expect banks, particularly the PSU ones, to witness stress on the asset quality front and report higher NPAs for 4QFY2015. Although 4Q has historically been a favorable quarter for cement, capital goods, infrastructure and construction companies, we expect a mixed set of results from these companies in 4QFY2015.
In case of pharma stocks, I expect a healthy 10-15% yoy growth in earnings for the quarter. Automobile companies are likely to report only a modest growth for the quarter due to lower volume growth in the two-wheeler space, which is owing to the slowdown in the rural economy. I expect metal companies to report a subdued performance due to correction in steel prices. Further, I expect subdued earnings in the mining sector as well. Hence, taking an overall view, I expect corporate earnings for 4QFY2014 to be a mixed bag.
I expect the broader market outlook to remain strong in the medium term and expect the benefits of a cyclical revival in the economy to translate into corporate earnings after 2QFY2016.
ET.com: Give me one investment mantra (can be more than one) for retail investors to follow at all times while making their investment decisions in stocks?
Investors should invest in a systematic manner in the market and not be influenced by greed and fear as the market has inherent nature of volatility. I suggest retail investors to invest with a longer-term time horizon, ideally 2-3 years, which would likely give them favorable returns.
ET.com: What is your call on the banking sector? They have clearly been dragging the markets lower in the recent past. Most of the PSU banks are trading at their 52-week low levels. Does that mean that investors have lost faith in the PSU banking lot?
Structurally I am positive on the banking space, especially private sector banks, which are expected to gain market share, going forward. Moreover, we also expect PSU banks to witness an improvement in their asset quality with recovery in sectors like infrastructure, power, metal etc. With a cyclical upturn in the economy and with government reforms aiding these sectors, we expect banks to incur lower NPAs from their exposure to these sectors.
ET.com: What explains the recent sell-off in Indian markets? Two weeks ago everyone was blaming it on dollar strength, last week it was the US Fed activity and this week it is F&O expiry and geo political concerns. So what is the real reason?
Everything started with the jobs data in the US, which was supporting view of FED hiking interest rates which led to participants globally believing that liquidity may flow back to the US from riskier assets and emerging markets like ours. Of course FNO expiry had its role to play, but that parameter is just for the day. Mainly its apprehension about liquidity drying has resulted into this correction. It is very important to note that market is also thinking of disappointment in Q4 earnings. As far as geo-political tensions are concerned, it's impact of crude and indirectly on our markets may not be that high.
ET.com: Nifty has gone down from the levels of 9000 to sub-8400. What could be the absolute bottom for this market, another 5-10%?
Historically, it has been seen that even in strongest of bull markets you do get to see healthy correction. If the above apprehension does materialize, then we may see levels of 8000 or sub 8000, but if we look at the overall structure of this bull market, it will be very compelling to buy this market from both investment as well as trading perspective.
ET.com: Do you think the emerging geopolitical concerns will take oil even higher and the bull market that we saw on the back of falling crude oil prices comes under threat? Where do you see oil heading in the next 6-12 months?
No. We don't think so. Firstly the current issue is not so threatening that can take Brent crude oil even above $65/bbl. Also if we look at inventory levels across the globe and especially the US, it suggests that there is very little room for crude prices to increase if other things remaining constant. This political tension may not be able to change the course of oil prices and hence apprehension of again rise in prices and inflation is very unlikely for quite some time to come. From positional perspective, we believe that crude is heading down in the next 3-4 quarters.
ET.com: After a muted March, how do you expect April to pan out for investors? Is the market expected to head lower given earnings disappointment from Q4?
Earnings of India Inc are expected to be a mixed bag in Q4. Due to this, we expect some volatility in the market. In my view, any correction in the market should be used as a buying opportunity.
ET.com: There is one trend that we have witnessed in the month of March and that is 'sell on rallies'. The Indian markets are selling off on an intraday basis whenever there is any kind of good news. Does that worry you? And, will April be any different?
Global headlines have dominated market sentiments in March. In my view, fear of near-term interest rate hike in the US kept the markets in jitters through March. I expect the markets to draw comfort going forward from a dovish US Fed, which is expected to go for modest rate hikes only, later this year, to counter the impact of a very strong dollar caused by easing in the Euro zone and Japan. I also expect the markets to gain from dovish stance by the RBI which is expected to embark on an extended monetary easing cycle.
ET.com: Mutual funds are buying heavily into the market after remaining net sellers for two-three years. Do you think retail investors are making a comeback with vengeance after burning their hands in the 2008 financial crisis?
I expect retail investors to participate in the market, given the strong outlook for the Indian equities. The recent offer for sale of Coal India generated a good response from retail investors and the stock price of the company has appreciated post the issue, while the upcoming IPO of Inox Wind is expected to do well as well.
This will likely boost retail investors’ confidence. In the last one year, compared to other assets classes like gold, real estate, fixed deposit etc., equities have generated good returns and are expected to continue to outperform going forward as well, taking a longer-term perspective.
ET.com: From an earnings perspective, where do you see the surprises and the disappointments?
I expect banks, particularly the PSU ones, to witness stress on the asset quality front and report higher NPAs for 4QFY2015. Although 4Q has historically been a favorable quarter for cement, capital goods, infrastructure and construction companies, we expect a mixed set of results from these companies in 4QFY2015.
In case of pharma stocks, I expect a healthy 10-15% yoy growth in earnings for the quarter. Automobile companies are likely to report only a modest growth for the quarter due to lower volume growth in the two-wheeler space, which is owing to the slowdown in the rural economy. I expect metal companies to report a subdued performance due to correction in steel prices. Further, I expect subdued earnings in the mining sector as well. Hence, taking an overall view, I expect corporate earnings for 4QFY2014 to be a mixed bag.
ET.com: Give me one investment mantra (can be more than one) for retail investors to follow at all times while making their investment decisions in stocks?
Investors should invest in a systematic manner in the market and not be influenced by greed and fear as the market has inherent nature of volatility. I suggest retail investors to invest with a longer-term time horizon, ideally 2-3 years, which would likely give them favorable returns.
ET.com: What is your call on the banking sector? They have clearly been dragging the markets lower in the recent past. Most of the PSU banks are trading at their 52-week low levels. Does that mean that investors have lost faith in the PSU banking lot?
Structurally I am positive on the banking space, especially private sector banks, which are expected to gain market share, going forward. Moreover, we also expect PSU banks to witness an improvement in their asset quality with recovery in sectors like infrastructure, power, metal etc. With a cyclical upturn in the economy and with government reforms aiding these sectors, we expect banks to incur lower NPAs from their exposure to these sectors.
ET.com: What explains the recent sell-off in Indian markets? Two weeks ago everyone was blaming it on dollar strength, last week it was the US Fed activity and this week it is F&O expiry and geo political concerns. So what is the real reason?
Everything started with the jobs data in the US, which was supporting view of FED hiking interest rates which led to participants globally believing that liquidity may flow back to the US from riskier assets and emerging markets like ours. Of course FNO expiry had its role to play, but that parameter is just for the day. Mainly its apprehension about liquidity drying has resulted into this correction. It is very important to note that market is also thinking of disappointment in Q4 earnings. As far as geo-political tensions are concerned, it's impact of crude and indirectly on our markets may not be that high.
ET.com: Nifty has gone down from the levels of 9000 to sub-8400. What could be the absolute bottom for this market, another 5-10%?
Historically, it has been seen that even in strongest of bull markets you do get to see healthy correction. If the above apprehension does materialize, then we may see levels of 8000 or sub 8000, but if we look at the overall structure of this bull market, it will be very compelling to buy this market from both investment as well as trading perspective.
ET.com: Do you think the emerging geopolitical concerns will take oil even higher and the bull market that we saw on the back of falling crude oil prices comes under threat? Where do you see oil heading in the next 6-12 months?
No. We don't think so. Firstly the current issue is not so threatening that can take Brent crude oil even above $65/bbl. Also if we look at inventory levels across the globe and especially the US, it suggests that there is very little room for crude prices to increase if other things remaining constant. This political tension may not be able to change the course of oil prices and hence apprehension of again rise in prices and inflation is very unlikely for quite some time to come. From positional perspective, we believe that crude is heading down in the next 3-4 quarters.
( Originally published on Apr 04, 2015 )
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