Devarsh Vakil, Deputy Head of Retail Research at HDFC Securities, feels the Reserve Bank seems to be following other central banks by first trying to reduce liquidity by abandoning GSAPs and announcing VRRR calendar.
“The equity markets are relieved temporarily by the dovish tone but are aware of the rate hike possibilities going ahead,” said Vakil, who has over 17 years of experience in the field of financial markets research.
After the TCS earnings, in an interview to Sunil Shankar Matkar of Moneycontrol, Vakil said its large deal wins will ensure that earnings will continue to trend higher for the next few quarters. “As more corporates opt for digital transformation, cloud adoption and automation, we expect TCS to continue to win more deals,” he said.
What is your reading on the RBI Monetary Policy and the commentary by the RBI governor?
The Monetary Policy Committee (MPC) meet outcome was largely on expected lines, though sounding a bit dovish. The RBI seems to be following other central banks by first trying to reduce liquidity by abandoning GSAPs (Government Securities Acquisition Programme) and announcing the VRRR (variable reverse repo rate) calendar. It also cut inflation projection for FY22 by more than the street expectations to 5.3 percent. Though it has not hinted at rate hikes, reverse repo rates could be hiked in December meet, signaling the start of policy normalisation.
The equity markets are relieved temporarily by the dovish tone but are aware of the rate hike possibilities going ahead.
Is it the time to be more bullish on the IT space, especially after TCS earnings? What is your view on TCS earnings?
TCS has won many major deals from marquee customers like Royal London, John Wiley, Converge ICT, Dutch Golf, Neptune, Rich Products, Standard Bank, Avianca, TFL, NXP. These large deal wins will ensure that earnings will continue to trend higher for the next few quarters.
As more corporates opt for digital transformation, cloud adoption and automation, we expect TCS to continue to win more deals.
Moody’s changes India’s ratings outlook to stable from negative. Does it mean that risks for the financial sector are lower now along with visibility of sustained growth and gradual fiscal consolidation?
Yes. Moody’s ratings upgrade is nothing but a realisation of improved financial health of India’s finances. The government’s own finances are on the mend with the better-than-expected direct and indirect tax inflows. The government is likely to be in spending mode in the second half of the year that will help the infrastructure sector to post superior growth.
In the last five years, banks have recovered more than Rs 5 lakh crore of bad loans, enabling them to improve their financial metrics. The government has infused more than Rs 3 lakh crore in PSU banks and taken a series of reforms to improve debt resolution and recovery. These banks have the balance sheet strength to fund credit expansion, leading to higher economic growth.
US Treasury Secretary Janet Yellen warned that a US debt default could trigger another recession, as an October 18 deadline approaches. Do you feel so, and what is your view?
US politicians on both sides of the aisle usually haggle but eventually come to a compromise. They are likely to sort this out before the deadline. We believe there is almost next to zero chance of US defaulting.
Several PSU companies, including oil, power and coal, saw big run-up in stock prices. What are the reasons for this rally? Is the under-ownership one of reasons for this rally?
Several supply-side constraints in global supply chain are leading to better price realisations for these companies. Stock prices are rising in recognition of improving earnings prospects.
What are the key factors that one should consider before picking stock and create a portfolio of stocks?
Stock picking and portfolio construction is a vast subject. To put it succinctly, the first step is to asses one’s risk appetite. Second step is to prepare asset allocation plan based on one’s risk appetite. Depending on asset allocation and risk appetite, one needs to decide allocation to equities.
Choose the stock based on bottoms-up criteria like earnings growth and visibility, valuations, management quality and attractiveness of the industry. Final step is to decide on position size / portfolio percentage allocation to individual stocks.
Once portfolio is constructed this way, it is important to track earnings growth trajectory and valuation of various stocks and reallocate the capital amongst its attractiveness.
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