‘RBI has Paused, but There is Room for Rate Cut by Banks’
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:
WHO BENEFITS FROM GST
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-
ON PSU BANKS
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.