ET NowIn a chat with ET Now, Sonam Udasi, Head–Research, TATA Asset Management Ltd, talks about the markets as well as some sectors and stocks. Excerpts:
ET Now: Poor performance by corporate India was the big factor for markets in the third quarter. Do you see earnings improve from the fourth quarter onwards?
Sonam Udasi: I think earnings improvement in some of the laggard sectors is still some time away. Such sectors include PSU banks, capital goods, EPC contracting space, etc., among others. A lot of work needs to be done on balance sheet repairment, capital raising and improving asset quality. I do not think that will happen even in Q4.
The good thing is that the sectors which have strength — such as IT and pharma — have not disappointed. I see this trend continuing. As we enter Q4 and Q1 FY16, they will emerge even stronger. The same holds true for a large part of the auto sector as well.
ET Now: Let us talk about the oil sector. Stocks like RIL have brought the markets down, but ONGC — even the oil marketing companies — have rebounded pretty sharply despite posting extremely weak Q3 numbers. Do you see these inventory losses and subsidy concerns being priced in now?
Sonam Udasi: We have a little different view on this. While it is true that bulk of the subsidy is gone, it is still not free market pricing. Prices of diesel and petrol were cut a fortnight before the elections, but the prices have again marginally gone up now.
If we look at crude point-to-point over the fortnight, the price should have gone up by Rs 3 per litre. But that has not happened. So, it is really a case of soft gloves as of now. Unless free market really comes in, I would tend to be circumspect on the entire space.
ET Now: What is your view on the industrial sectors? The sector leader came out with a good set of commentary despite weak earnings. Have you started looking at it in a different light now?
Sonam Udasi: All said and done, unless order booking is really picking up, I won’t be overly optimistic on this area. In some of these spaces, competitive pricing continues to be there.
At what margins are you getting these orders? How will they get executed? And does it add to your return-ratio profile? These are the key determinants for us. For the large industrials, these parameters look a little difficult at the moment.
ET Now: From a valuation perspective, in what kind of range do you see our markets trading during the next couple of months?
Sonam Udasi: Everyone agrees that this market is no longer cheap. At the same time, we are moderately valued. We are not at the peak of valuations like we were in 2008.
That said, any disappointment on the budget side could lead to some amount of volatility in the markets. As it is, we have had a good run in 2014. But we think 2015 will be a volatile year. Depending on triggers, this market will give returns. But point to point, there will be volatility.
ET Now: Poor performance by corporate India was the big factor for markets in the third quarter. Do you see earnings improve from the fourth quarter onwards?
Sonam Udasi: I think earnings improvement in some of the laggard sectors is still some time away. Such sectors include PSU banks, capital goods, EPC contracting space, etc., among others. A lot of work needs to be done on balance sheet repairment, capital raising and improving asset quality. I do not think that will happen even in Q4.
The good thing is that the sectors which have strength — such as IT and pharma — have not disappointed. I see this trend continuing. As we enter Q4 and Q1 FY16, they will emerge even stronger. The same holds true for a large part of the auto sector as well.
ET Now: Let us talk about the oil sector. Stocks like RIL have brought the markets down, but ONGC — even the oil marketing companies — have rebounded pretty sharply despite posting extremely weak Q3 numbers. Do you see these inventory losses and subsidy concerns being priced in now?
Sonam Udasi: We have a little different view on this. While it is true that bulk of the subsidy is gone, it is still not free market pricing. Prices of diesel and petrol were cut a fortnight before the elections, but the prices have again marginally gone up now.
If we look at crude point-to-point over the fortnight, the price should have gone up by Rs 3 per litre. But that has not happened. So, it is really a case of soft gloves as of now. Unless free market really comes in, I would tend to be circumspect on the entire space.
ET Now: What is your view on the industrial sectors? The sector leader came out with a good set of commentary despite weak earnings. Have you started looking at it in a different light now?
Sonam Udasi: All said and done, unless order booking is really picking up, I won’t be overly optimistic on this area. In some of these spaces, competitive pricing continues to be there.
At what margins are you getting these orders? How will they get executed? And does it add to your return-ratio profile? These are the key determinants for us. For the large industrials, these parameters look a little difficult at the moment.
ET Now: From a valuation perspective, in what kind of range do you see our markets trading during the next couple of months?
Sonam Udasi: Everyone agrees that this market is no longer cheap. At the same time, we are moderately valued. We are not at the peak of valuations like we were in 2008.
That said, any disappointment on the budget side could lead to some amount of volatility in the markets. As it is, we have had a good run in 2014. But we think 2015 will be a volatile year. Depending on triggers, this market will give returns. But point to point, there will be volatility.
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