In an interview with CNBC-TV18, Trivedi listed factors such as passage of Goods and Services Tax, implementation of Seventh Pay Commission, besides a good monsoon and the central bank cutting rates as those that he would propel an earnings recovery in the first quarter of FY18. “But it is too early to predict a V-shaped recovery in the third quarter of FY17.”
He also outlined his views on the IT and FMCG sectors, both of which he is negative on, but said OMCs and select banks such as SBI looked attractive.
Below is the verbatim transcript of Gautam Trivedi’s interview to Latha Venkatesh, Anuj Singhal and Sonia Shenoy on CNBC-TV18.
Sonia: Is this a cyclical slowdown that we are seeing in the IT sector with names like Tata Consultancy Services (TCS) or do you think there is bigger structural problem that we are facing?
A: Our analysts Rumit Duggar thinks there is a structural problem, which is impacting the IT industry and it is not something that is going to go way in the next one or two quarters. So, there is a structural shift in the way the spending out of the US in particular is impacting Indian IT companies. We don’t think necessarily it is going to be gone in the next few quarters.
Latha: If you look at the mix of global headwinds and data that you are getting — the dismal Chinese trade numbers yesterday, the not so flattering US jobs numbers — the whole gamut what is your sense about the Indian growth story itself. Do you think that third quarter is going to be that big V-shaped recovery that a lot of market analysts are expecting?
A: I was on your show about three and a half months ago and I said that at that point there were five potential triggers in the market. First being a good monsoon — thankfully that has played out. The second being the new Reserve Bank of India (RBI) governor would come in potentially and start cutting rates and that has obviously happened. The third being the 7th pay commission implementation that has happened as well. Fourth being the passage of the goods and services tax (GST) that has happened and of course now we await the implementation.
The fifth one which hasn’t played out yet has been the quarterly numbers coming through. So, we have seen disappointments on the quarterly numbers. I am not sure if I can predict that Q3 is going to be the V shaped recovery but, at least the first four factors which I mentioned — once they start kicking in, we will start seeing that recovery. So, it is little early days for that and I hope we start seeing that in the start of the first quarter of the next fiscal year.
Sonia: The last time we spoke with you, you had indicated how this agricultural theme is playing out well. Most of the good news seems to be in the price especially for the two-wheelers, the tractor makers, etc but do you see this theme continue to give good returns to investors?
A: The agricultural theme — driven by the better than expected monsoon — has not percolated down as yet into the absolute consumption side. So we remain negative on most fast moving consumer goods (FMCG) plays with the exception of probably ITC because that is also because of sheer valuation that is pretty attractive.
However, apart from that we still don’t think one good monsoon is going to change the scenario for the consumption story in India. Hence, at this point it is better to be watchful and see how that plays out over the next few quarters versus going back into the FMCG stocks.
Anuj: One dichotomy, which is playing out in the market is that we have both upstream and downstream oil companies at 52 week highs, which is unrealistic. What you think is happening here?
A: I agree, the oil marketing companies (OMCs) have been among the best performing stocks this year, all three of them. In fact, we have a buy on Indian Oil Corporation (IOC) — it is our top pick. On the upstream side it is still confusing as to why that is the case given where oil prices are and specially where gas prices are. Our bets still remain on the OMCs and we continue to recommend to buy IOC.
Latha: What kind of market gains are you seeing in 12 month forward period and which sectors might lead that?
A: As far as the next 12 months are concerned, I won’t be surprised if we end up having a correction between now and then. It will be a very healthy correction and something that is probably long awaited.
If you look at the last, just about two and a half years since the election results, which were announced on the May 19th 2014, the market only gone up 25 percent. As much as people think that the markets have done extremely well the fact is that Nifty — if I use that as a benchmark — is only up 25 percent in absolute terms, so that is not a big move.
We haven’t seen that big move yet in the market. Also, you have seen that between the date of the election and today, you had a period where you had a 22 percent correction in the market, so that is obviously a big correction. I am not certainly suggesting we will see a correction as big as that, but there are bunch of macro factors globally, as you said at the outset, that could take this market down a little further before it is time to buy again. So, my view is the market could be up another 25 percent in the next 12 months, but you will see probably a measure of correction before that.
Latha: If I can just get that measure in what would you mean a measure? Technically, people are expecting support at 8,200, yesterday we had S Naganath, President and Chief Investment Officer at DSP BlackRock Investment Management saying that it could be even worse, what kind of correction should we be prepared for?
A: It is hard to put a number to it because the fact is domestically there aren’t any factors that would lead or cause a correction. Things are going reasonably well for the government and people are waking up to the fact that the Modi government is doing things slower than what they would have expected. However, you are starting to see results of that gradually. It is all gradual again, so I don’t want to say that things are happening fast. May be that is the pace at which the Modi government is comfortable and that is fine. So there is nothing domestically to warrant a major correction, if anything does happen that is going to be external.
more to follow…