No negative cues for mkts, Q2 earnings have been supportive: Gaurang Shah

If the earnings do not pick up in the third or the fourth quarter, it will be a negative for the markets, Shah added

Only geo-political uncertainties or natural calamities, which no one can predict, will drag the sentiment in the near future, said Gaurang Shah, Head Investment Strategist at Geojit Financial Services in an interview with Pranati Deva. If the earnings do not pick up in the third or the fourth quarter, it will be a negative for the markets, he added.

How are you mapping the earning season so far and has it largely been in line with expectations?

The earnings season has not been disappointing. Improvement has been visible in some of the sectors and stocks, especially the FMCG and consumption-driven space. One must have a very sector-specific and stock-specific approach while looking at the September-quarter earnings.

What else is catching your attention when it comes to earnings? Any specific stocks you would like to bet on?

Cement, metals, auto ancillary stocks have reported good numbers so far. All cement companies large-cap and midcap have done well in Q2. ACC, Ultratech Cements, Ambuja Cements, India Cements are the top picks from the cement space.

Among metal companies, Vedanta, Hindalco, Tata Steel are good bets while in the banking space, some of the midcap private banks like RBL, Kotak Mahindra Bank can also be looked at by the investors. YES Bank was a one-off case due to their provision, but doesn’t look like that case will be repeated, and hence one should be positive on YES Bank as well.

Housing finance companies have also delivered good set of numbers this quarter.

With the bank recapitalization plan, Can investors reap long-term benefits from PSBs at this juncture? Which PSBs whould you bet on?

If one has already invested in the public sector banks (PSBs), they should hold on but a new investor should wait for a correction before buying the PSBs. After gaining 30-50%, the risk-reward is not favourable at current valuations. Also, the total corpus of recapitalisation has only been announce, one still doesn’t know the how much each bank gets and in what capacity. So, one must be patient when it comes to PSBs for now, for making fresh investments.

Bank of Baroda, State Bank of India, Union Bank of India and Indian Bank are the favoured picks in the current scenario.

How would you rate IT stocks as of now? With Infosys lowering its guidance again, do you think it is a good pick?

One can see signs of improvement in the IT sector but recovery and impact on earnings will still take longer to reflect in the stock price. With Infosys, one did not see much stock reaction even after they lowered their guidance for FY18. It was mainly because of the buyback till November 1.

What is the view right now for the overall market?  Do you think because of the global rally playing out, we would continue to hold these highs or do you sense that there could be a time when the market could get volatile or maybe get into a time wise or a price wise correction as well?

Markets always correct, not only in India but globally. It will be good if the markets correct as any one-way movement is not positive for the markets. Today, we see levels near 10,400 on Nifty and 33,100 on Sensex since earnings have been supportive and the government is taking the right measures and implementing the new policies.

But the markets are  bottoming out right now; the earnings have not been phenomenal. Also, if the government makes the environment conducive enough that it triggers capex, which  in turn will increase the employment and will be a positive for the markets.

The elections in Gujarat next month, another 4 to 5 states next year followed by assembly elections in 2019 will impact the market but currently there are no negatives in the market.

What do you think could be the negative surprise when it comes to earnings and dampen the street sentiment?

Only geo-political uncertainties or natural calamities, which no one can predict, will drag the sentiment in the near future. Also, if the earnings do not pick up in the third or the fourth quarter, that will be a negative.

Currently, the domestic institutions are so flushed with funds that soon the investors will not be bothered by the FIIs selling. In the last 3 months, the domestic institutions have been buying. In a scenario, where with FIIs selling and DIIs not buying, Nifty may have dropped to 7000-levels.

Also, retail investors, now understands the market and are becoming more and more active investors, either direct or via mutual funds, which can be seen growing to a larger scale in the future.

Where do you see the markets heading by December-end?

We are looking at 10,500-10,800 for Nifty and 33,800-34,200 for Sensex for December-end.