Service, export growth surprised positively: India Infoline

Despite 6.9% GDP growth being the worst India has posted in nine months, Amar Ambani, head of research at India Infoline is positively surprised with the growth recorded in services and exports. We expected services to possibly be around 8.5-8.9%, he explained. However, he is disappointed with the growth in agriculture.

In terms of monetary policy going forward, Ambani says he doesnt think the central bank is going to change its stance till it is fully convinced that inflation has come down. Our view is that rates will not start coming down before the first six months of next calendar year, he said.

Below is an edited transcript of his interview with Latha Venkatesh and Sonia Shenoy. Also watch the accompanying video.

Q: What is your reaction to the number and how do you think it would influence the market from here?

A: 6.9% was largely expected. As an absolute figure, it is disappointing but largely expected by the street. But what has been surprising has been the exports and services number. Everybody expected services to possibly be at 8.5-8.9%, but its grown at 9.3% or so. Even exports surprisingly saw a big jump, which has prevented further fall.

So overall, the number was expected but it is bad. We were expecting mining and electricity to not do so well, but the other slightly negative surprise was agriculture which has come at slightly lower than what analysts were expecting.

Q: The Nifty is very close to 4,800 at this point and Sensex has crossed 16,000. Would you start buying bank stocks already because the growth pressure could have a different kind of impact on the RBI? What would be your stock wise or sector wise analysis from the GDP numbers?

A: Typically when you have an expectation that is built around 6.9% and that is what comes in, then you have people who come and cover shorts, even as far as Bank Nifty is concerned. From the last expiry, people have rolled over a lot of their short positions. So I would not be too surprised to see that covering come in.

But just seeing this recovery after the announcement of the numbers, it hasnt given me too much hope for any major upside. It could very well be possible that towards the end of the day we are again back down 40 or 50 points on the Nifty. So I am not looking at this immediate recovery of the market as some kind of an indication.

But overall, I think the RBI took a stance in terms of strengthening or hiking rates and I dont think they will start reducing or even think about it before they are convinced that inflation goes down. Sometime back, you had food inflation falling but crude prices rising and then food inflation was rising and crude prices are falling. Now both seem to be moderately under control, but you have a new devil in rupee depreciation. Our belief is that given the current account deficit, we will move to a totally new range in terms of rupee and dollar and I dont think we are coming below 52 soon.

So I think inflation will be there and our view is that rates will not start coming down before the first six months of next calendar year. So I dont think its going to be a big change.

Q: I heard you mention earlier on that this is not a sustainable recovery and just a sentimental move that the market is seeing. So would you not venture into any sector at this point in time or have are you eyeing any buy calls after the downside?

A: Well, we are always looking to buy something or the other. What I think is that we have underperformed some of the global markets and what we will do for sometime is continue to track these markets. So if the global markets overall are going to be weak, then I dont see a case for a near-term outperformance.

Given the extent of the fall, there is always a possibility of some kind of a bounce back and we feel that 4,900 or so on the Nifty is possibly as high as it can get in the near to medium-term. So we are always looking at buying and our strategy there is bottom-up.

But rather than sectors, our approach is more stock specific. We are looking at relative outperformance if a particular stock or sector is beaten down considerably compared to others even within sector.

For example, tactically you have an underperform on the banking, but we like Axis Bank vis--vis the rest of the sector because its a private sector bank which we prefer over public sector ones. Also, if you look at the relative valuation compared to the other peers like HDFC Bank or so, the discount is as wide now as 50% or so. So we are looking at stock specific ideas rather than top-down approach.

Q: I heard you mention earlier on that this is not a sustainable recovery and just a sentimental move that the market is seeing. So would you not venture into any sector at this point in time or have are you eyeing any buy calls after the downside?

A: Well, we are always looking to buy something or the other. What I think is that we have underperformed some of the global markets and what we will do for sometime is continue to track these markets. So if the global markets overall are going to be weak, then I dont see a case for a near-term outperformance.

Given the extent of the fall, there is always a possibility of some kind of a bounce back and we feel that 4,900 or so on the Nifty is possibly as high as it can get in the near to medium-term. So we are always looking at buying and our strategy there is bottom-up.

But rather than sectors, our approach is more stock specific. We are looking at relative outperformance if a particular stock or sector is beaten down considerably compared to others even within sector.

For example, tactically you have an underperform on the banking, but we like Axis Bank vis--vis the rest of the sector because its a private sector bank which we prefer over public sector ones. Also, if you look at the relative valuation compared to the other peers like HDFC Bank or so, the discount is as wide now as 50% or so. So we are looking at stock specific ideas rather than top-down approach.