‘RBI has Paused, but There is Room for Rate Cut by Banks’

The Economic Times - - Money -

Con­sumer durables will en­joy twin ben­e­fits of strong market growth as well as in­creased market share ow­ing to the shift from un­or­gan­ised to or­gan­ised, said Nis­chal Ma­hesh­wari, head-institutional equities at Edel­weiss Se­cu­ri­ties. In an in­ter­view to Sanam Mir­chan­dani, on the side­lines of Edel­weiss in­vestor con­fer­ence, Ma­hesh­wari said both eq­uity market re­turns in 2017 and earn­ings growth in the up­com­ing fi­nan­cial year are likely to be in mid-teens. Edited excerpts:


Did the De­cem­ber quar­ter re­sults re­flect the real im­pact of de­mon­eti­sa­tion? With re­gards to the De­cem­ber quar­ter re­sults, some of the do­mes­tic com­pa­nies have wit­nessed slow­down, but it is sig­nif­i­cantly bet­ter than what was an­tic­i­pated in Novem­ber. One of the pri­mary rea­sons for this has been the fast re­mon­eti­sa­tion of the econ­omy and the gov­ern­ment’s strong dig­i­tal push. Go­ing ahead, things should get bet­ter and one should ex­pect bet­ter re­sults in the March quar­ter.

How much earn­ings growth are we likely to end the year with and what’s your take on earn­ings go­ing for­ward? Earn­ings growth has cer­tainly bot­tomed out. For FY17, we ex­pect earn­ings growth to be around 8-10%, a marked im­prove­ment over no growth in last two years. This is de­spite de­mon­eti­sa­tion. Go­ing ahead as well, ex­pect earn­ings growth to ac­cel­er­ate to mid-to-high teens. This im­prove­ment in earn­ings is not due to sharp im­prove­ment in topline, but rather im­prove­ment in ca­pac­ity util­i­sa­tion re­sult­ing in a much bet­ter bot­tom­line growth.

What will be the key trig­gers for In­dian markets go­ing ahead? Any in­dex tar­gets for De­cem­ber-end? Over the past cou­ple of years, In­dian markets were mainly driven by global liq­uid­ity and lower in­ter­est rates. How­ever, that has more or less played out. In­cre­men­tally, it is the earn­ings growth that will drive the markets. Given our ex­pec­ta­tions of mid teens earn­ings growth, we ex­pect market re­turns to be in sim­i­lar range.

The RBI has sig­naled that in­ter­est rate cy­cle may be over for now. How will this bode for rate-sen­si­tive sec­tors go­ing ahead? RBI sig­nalling that in­ter­est rate cy­cle is over for now is cer­tainly a sur­prise. But one must keep in mind that we were any­way at the fag end. Also, while RBI’s eas­ing cy­cle might be over, lend­ing rates could still come down, as banks have passed on only 50-60% of the pol-


icy rate cuts, es­pe­cially given the low credit growth and sur­plus liq­uid­ity in the bank­ing sys­tem. This, in turn, could pro­vide sup­port to in­ter­est rate sen­si­tives.

What are the key sec­tors that will ben­e­fit from the investment theme of shift to or­gan­ised from un­or­gan­ised that you have been ad­vo­cat­ing? The key the­sis of our theme ‘shift to or­gan­ised from un­or­gan­ised’ is the struc­tural re­forms which are tak­ing place.

The gov­ern­ment’s var­i­ous pol­icy ini­tia­tives — stream­lin­ing of cor­po­rate taxes and busi­ness reg­u­la­tions, curb­ing black money men­ace, im- ple­ment­ing GST, among oth­ers — are bound to pro­pel this shift. We be­lieve or­gan­ised play­ers in di­ag­nos­tics, dairy, branded ap­par­els, build­ing ma­te­rial, plas­tic and pack­ag­ing sec­tors will reap pal­pa­ble ben­e­fits of the shift.

What is your assess­ment of PSU banks earn­ings so far in Q3. Is the worst over in terms of earn­ings? With re­gards to PSU banks earn­ings, the good The eas­ing of ex­cise du­ties of cig­a­rette com­pa­nies cer­tainly shows the eas­ing reg­u­la­tory en­vi­ron­ment for this sec­tor. Given that these com­pa­nies have un­der­per­formed their peers in the past cou­ple of years, this space looks in­ter­est­ing and there should be re­vival of in­vestor in­ter­est in it.

What would be your top three stock picks for 2017? Our top three picks for 2017 would be Re­liance, Ashok Ley­land and Shree Ce­ment.

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