Sandip Sabharwal, chief of portfolio management services at Prabhudas Lilladher, a leading financial services group, believes investor sentiment will improve. He explains why to Abhishek Vasudev, with his take on economic trends. Edited excerpts:
Infosys has kick-started the results season, on a disappointing note. What are the key takeaways from the announcements? How are you positioning yourselves in the IT (information technology) space?
Infosys has been under-performing for a long time now and we expect this trend to continue in the days ahead. The company has guided for a growth rate of six to eight per cent, much lower than the industry growth rate. Even Nasscom has guided for a 11-14 per cent growth rate. Global players like Cognizant, Accenture and SAP have a much better expectation.
We are waiting for the TCS results next week to decide whether it is a company-specific issue with Infosys or become an industry trend. Issues like finalisation of IT budgets and downsizing of outsourcing are also a matter of concern for this sector. In all the portfolios we manage, we currently do not have holding in any large-cap IT company.
What are your expectations from the earnings season?
Not much is expected. The results are likely to be subdued and will not have much bearing on the markets, as they (markets) have already factored in the positives and the negatives. However, individual outperformance cannot be ruled out and would be good for the respective companies.
Markets have been trading range-bound for a long time. Where are we headed in the short-to-medium term? What triggers can take the markets higher?
The markets are in a consolidation mode and may move higher, as long as global cues remain supportive. The US economy is giving signals of improvement and fears of a hard landing in China are also receding. Investors seem to be moving money out of the bond market and shifting to equities, and this trend is likely to continue.
On the domestic front, valuations are not high and the Reserve Bank of India (RBI) is likely to cut rates in its upcoming monetary policy review. So, in my opinion, these triggers will boost investor sentiment and can take the markets higher.
How do you see the broader markets in the days to come? Any stocks/sectors you are bullish on?
The broader markets are likely to outperform the benchmark indices over a year. When liquidity is tight and the monetary situation not viable, the smaller companies tend to underperform. With the rate cut on the cards, this space is likely to witness positive investor sentiment.
I am bullish on the aviation sector (except for Kingfisher Airlines), as the reduced competitiveness would result in higher occupancies for the companies and higher ticket yields, which would be beneficial for the players. Companies from the media space that provide cable TV and satellite TV services are also looking attractive, as digitisation would help them venture out in new markets.
Infrastructure companies that are into development of roads are also looking attractive, as the National Highways Authority of India has been placing a lot of orders, which is likely to continue. The Union Budget proposals for 2012-13 have also been positive for this sector. A rate cut by the RBI will also help.
What are your expectations from the upcoming RBI policy review? How do you expect banking stocks to perform in this backdrop?
We expect a 25 basis point (bps) cut. An aggressive move by RBI, by reducing the Cash Reserve Ratio along with the rate cut, cannot be ruled out, given the recent Index of Industrial Production numbers. Banking stocks will benefit from this move, as the cost of funds will reduce and the risk of high non-performing assets will also come down.
How are foreign institutional investors (FII) viewing the India equity markets in the light of the recent PNGRB (gas regulator) move and the government’s directive to Coal India?
These issues can happen anywhere. The move by PNGRB was expected but the extent of reduction and retrospective effect came as shocker, leading to sharp decline in IGL’s share price. The performance of the overall economy is of more importance. If growth does not pick up here, we might see less allocation from FIIs to India vis-a-vis other emerging markets.
