ET Now In a chat with ET Now, Rashesh Shah, Chairman & CEO, Edelweiss Financial Services, shares his views on the market as well as the earnings picture for Q1. Excerpts:
ET Now: Do you think the best of the rally has already played out for the year or are there significant amount of good times ahead?
Rashesh Shah: There is a huge amount of optimism and the trend is clearly upwards. Though in the first phase of the rally that has panned out in the last couple of months, there have been huge amounts of FII inflows and currently a lot of investors are in a consolidation phase. Moreover, there is also some of amount of sticker shock because a lot of midcaps are up 3x. So if there was something trading at Rs 100, it now is at Rs 300.
Also, a lot of investors would be watching out for the month of August, especially from the monsoon point of view. The last couple of weeks have been positive on the rainfall front, but we need another three weeks of information on how rainfall throughout the country has been, to decide whether this year is going to be a drought like 2009 or a deficient rainfall like in 2012. We hope it is closer to 2012, in which case, agricultural price and other inflationary conditions will be under check.
However, the next three weeks are critical and all the investors are in a wait and watch mode. August is also a holiday season for a lot of international investors and I expect the next few months would probably witness a sideways consolidation phase with a 5% up or minus in the market. The second quarter earnings and some reforms from the government will be an important catalyst after that.
ET Now: The earnings picture for Q1 is split right in the middle - IT has thrown up surprises, but banks and engineering companies have disappointed. Your view?
Rashesh Shah: The expectations are for an economic revival on the India growth story. Currently the earnings that we have seen are still fairly robust for international oriented companies like IT and pharma. Investor interest in these companies is still robust.
As I said, the second and third quarter will be very important. Currently, sentiment is very positive and liquidity is at comfortable levels. However, earnings and fundamentals are yet to improve on the Indian front. I expect to see some improvement in Q2, but a significant improvement in Q3 for investors to get the confidence that these sentimental liquidity conditions were foretelling, to actually showing up in earnings and fundamentals.
ET Now: Do you think the best of the rally has already played out for the year or are there significant amount of good times ahead?
Rashesh Shah: There is a huge amount of optimism and the trend is clearly upwards. Though in the first phase of the rally that has panned out in the last couple of months, there have been huge amounts of FII inflows and currently a lot of investors are in a consolidation phase. Moreover, there is also some of amount of sticker shock because a lot of midcaps are up 3x. So if there was something trading at Rs 100, it now is at Rs 300.
Also, a lot of investors would be watching out for the month of August, especially from the monsoon point of view. The last couple of weeks have been positive on the rainfall front, but we need another three weeks of information on how rainfall throughout the country has been, to decide whether this year is going to be a drought like 2009 or a deficient rainfall like in 2012. We hope it is closer to 2012, in which case, agricultural price and other inflationary conditions will be under check.
However, the next three weeks are critical and all the investors are in a wait and watch mode. August is also a holiday season for a lot of international investors and I expect the next few months would probably witness a sideways consolidation phase with a 5% up or minus in the market. The second quarter earnings and some reforms from the government will be an important catalyst after that.
ET Now: The earnings picture for Q1 is split right in the middle - IT has thrown up surprises, but banks and engineering companies have disappointed. Your view?
Rashesh Shah: The expectations are for an economic revival on the India growth story. Currently the earnings that we have seen are still fairly robust for international oriented companies like IT and pharma. Investor interest in these companies is still robust.
As I said, the second and third quarter will be very important. Currently, sentiment is very positive and liquidity is at comfortable levels. However, earnings and fundamentals are yet to improve on the Indian front. I expect to see some improvement in Q2, but a significant improvement in Q3 for investors to get the confidence that these sentimental liquidity conditions were foretelling, to actually showing up in earnings and fundamentals.
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