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In a conversation with Peter Noronha, K.Subramanyam, Co-Head Equity Advisory, Altamount Capital shared his opinion on RBI’s monetary policy, market behaviour and corporate results.
Do you agree with RBI Governor Rajan's rationale behind holding the key rates at its bi-monthly Monetary Policy review meet held on July 4? What rate cuts are likely in the remaining part of FY16, going by macro-fundamentals?
The inflation is not at comforting levels where a further cut could be done. This could become clearer post monsoon when it becomes clear how inflation could be shaping up. At the moment, it is not clear how much rate cut could come though popular consensus indicates a further cut of 50 bps.
How has the earnings season panned out so far? When do you see the earnings cycle turning for India Inc? What are your estimates for earnings growth for FY16 and FY17?
The earnings season has more or less been on expected lines. Major outperformance is expected from beneficiaries of the decline in commodity prices, such as OMCs, autos, chemicals, textiles, etc. Capital goods and construction equipment companies are expected to do well, with infra spending increasing. The FY 16 earnings could be flat to slightly positive at 10%, but FY17 expectations are higher and 15-20% growth in profits could be seen on an average.
The monsoon session of Parliament has been stormy thus far. What would be the impact on the markets and what is the downside risk in the event that key bills are not passed in the foreseeable future?
These factors will continue to be cause of worry. But going by long-term approach may actually result in buying at lower levels on any strong correction.
How do you see global risks, including the euro zone turmoil, China market meltdown and US monetary tightening, impact Indian equities?
So far Indian equities are preferred as an alternative to other emerging markets due to the growth potential perceived from infra, telecom, rural and semi-urban buying power.
International risk will always be there and could see periodic selling pressure as problems from unexpected quarters could upset the applecart. But broadly, these falls could translate into buying opportunities.
Public sector undertaking (PSU) banks have been in the limelight after the government proposed to infuse Rs 70,000 crore in PSU banks over four years. Would you bet on any PSU banking stocks?
In terms of risk reward potential, the Indian PSU banking pack offers a high potential .Once NPAs start receding and banks are able to take over and restructure some of these companies in the steel, power and infra space, cash flows could improve dramatically and re-rating be possible. In terms of preference, SBI, BOB and Union Bank could be bought at dips.
Auto stocks, with the exception of Maruti Suzuki, have been underperforming the markets for some time. How would you position yourself in this space?
The approach has to be scrip-specific in the auto space. While the likes of Maruti, Ashok Leyland and Eicher Motors have been seeing steady growth, others such as Tata Motors are having some issues. From that view-point, it is better to stay with the steady ones.
ITC is trading near 52-week lows post its Q1 numbers. What's your take on ITC and other defensive plays such as Hindustan Unilever and information technology stocks, especially in light of the market volatility both globally and at home?
ITC is in a transformation stage; cigarettes business is taking a backseat, although it still remains the top revenue earner. Other businesses in its portfolio such as FMCG and agri could see some aggressive growth in times to come and thus at current level it could be an interesting pick. IT stocks could see muted growth for a couple of quarters more but with the US economy showing some signs of recovery they could be considered for buying at declines.
Which stocks or themes do you like in this market and expect to play out well over the next one year?
Infra themes such as ports and logistics could see good growth. Capital goods, chemicals and textiles are witnessing buying and could see the trend continuing.
