#39;Q3 earnings expected to be a mixed bag; could be company-specific#39;

January 11
14:02 2019

Earnings for the December quarter would probably be a mixed bag with some sectors (like banks, etc.) performing good and some (like automobiles) maybe not so good, said Dheeraj Singh, Head of Investments at Taurus Asset Management in an interview to Moneycontrol’s Sunil Shankar Matkar.

Edited excerpts:

Q. After a marginal upside in 2018, do you expect double-digit

growth in equity in 2019? Which among the midcaps, smallcaps and largecaps?

A. Midcaps and smallcaps have underperformed significantly compared to largecaps in the year 2018. This is in spite of some recovery in select midcap and smallcap stocks towards the end of 2018. But for this, the underperformance would have probably been even worse.

Conventional logic would, therefore, suggest that the midcap and smallcap stocks should recover to play catch-up. However, while this may happen in the medium term, it is not certain that it will happen in 2019 itself.

2019 would witness the general elections, the results of which are likely to impact the broader segment of the market that includes large-cap stocks. To begin with, any sentimental impact is generally more pronounced in large-cap stocks.

So, even if the election results impact sentiment positively, it may take some time for the sentiment to filter down to the smaller stocks. Whether this happens in 2019 or extends beyond the calendar year, only time will tell.

Q. Will the government stick to its FY19 fiscal deficit target of

3.3 percent and will India end FY19 with over 7 percent growth?

A. The government seems determined to stick to its fiscal deficit target and seems to be pulling out all stops to achieve the same. This includes measures like seeking interim dividend from RBI.

Amongst other measures, we may also witness subsidy payments being deferred to the next financial year in order for the government to meet its deficit target. While this is merely a cosmetic accounting move, it does allow the government to optically show a deficit figure that is within the target.

However, even if slippages do occur, it is unlikely to exceed 0.1 percent of the GDP. It shouldn’t concern the markets much.

On growth, the government has predicted approximately 7.2 percent growth in this fiscal. There’s no reason to doubt that this cannot be achieved.

Q. What are your expectations from RBI on interest rate and liquidity front, especially after Governor Shaktikanta Das’ commentary?

A. RBI remains committed to infuse liquidity into the broader system when needed. This has been clearly demonstrated when they increased the open market purchase of securities in the month of December 2018 to Rs 50,000 crore from the initially planned Rs 40,000 crore.

Additionally, they continue to maintain Rs 50,000 crore limit for January 2019 too.

On interest rates, the monetary policy committee is likely to be guided by the inflation print that will be released in mid-January.

We may not witness an immediate rate reduction because that would go against their stated monetary stance of “calibrated tightening”.

However, the likelihood of the committee changing its stance back to neutral (assuming the inflation print in January 2019 is also benign) remains high.

Q. Do you expect any big farm package, or any big populist

measure from Modi government in the last Union Budget?

A. We have already seen the introduction of 10 percent additional quota for the general category through a constitutional amendment. This could fall into the category of “big populist measure”.

We could see some more such measures within the next one month before the election commission announces the dates of the general election.

Therefore, the budget session of Parliament which begins on January 31 becomes significant, since some of these measures could involve legislative changes.

Q. How do you look at December quarter earnings season especially

after steep crude fall and rupee volatility?

A. Earnings for the December quarter would probably be a mixed bag with some sectors (like banks, etc.) performing good and some (like automobiles) maybe not so good.

Additionally, sectors such as information technology should post good financial numbers. However, they may likely guide conservatively on future growth.

To sum it up, earnings are likely to be industry specific in general.

They could also be entity-specific in some cases.

Q. Is there a too much pessimism in auto space? Is the threat of

slowdown going ahead real?

A. I would not say that there is too much pessimism in the auto sector.

While bellwether stocks like Maruti Suzuki and Hero MotoCorp have declined about 25 percent in the last quarter, they seem to be on the path to recover these losses. The decline was probably driven by the liquidity crisis in the NBFC sector which affected the availability of easy financing options.

The threat of a sharp slowdown is also probably overemphasized. While there has been some slowdown in the YoY sales figures in the month of December, it is still not clear if this is a sustainable trend. We should probably await the sales figures for the months of January and February before coming to a definitive conclusion on this.

Q. What is the real threat to Indian equities from a global perspective?

A. The predominant threats would be a sharp rise in crude prices, trade war and retaliatory tariffs amongst the leading economies of the world, and a sharp rise in interest rates across the world.

Related Articles