In an interview with Ashwini Kunder of myiris.com, Amit Nigam, Head-Equities, Peerless Fund Management Company opined, "We do not foresee any substantial pick up in earnings in the coming quarter."
1. How do you see market post budget? Where do you see Sensex and Nifty levels by end of 2015?
We think the markets should consolidate around current levels with a marginal negative bias as the earnings from corporate India have not been as per expectations. We are witnessing that the stocks of the companies which have delivered on earnings are doing better than those that have disappointed. We also think that the government’s disinvestment programme and other corporates fund raising plans would absorb a lot of liquidity in the short term. We do not forecast levels of these indices, however, we should see 2015 deliver another year of positive returns.
2. Recently RBI has reduced interest rate by 25 bps. There is expectation of further rate reduction in reminder of 2015. Considering this, do you think there is an opportunity to buy stocks from rate sensitive sectors?
We believe after the 2 rate cuts from RBI (cumulative of 50 bps) we can look forward to lowering of cost of funds for most of the banks and the same to be passed on to consumers (industry and retail) with a cut in the base rates. The same should help in pick of credit growth and trigger investments/ consumption though with a lag.Interest rate sensitive stocks; both suppliers of funds - banks & NBFCs, and consumers of funds - businesses & individuals; may benefit from this as for the former growth picks up while for the latter costs reduce.
3. Fourth quarter earnings will be announced next month. How do you see corporate earnings performance for March quarter?
After a dismal December quarter earnings, we do not foresee any substantial pick up in earnings in the coming quarter. The business environment still remains weak and has not shown signs of pickup in terms of demand.
4. Rupee weakened further and trading at a fresh two-month low of Rs 62.80 against the dollar. How do you see movement of rupee in near-term? How a rising dollar will impact markets?
Despite a strong rally by US Dollar [since end June 2014 the USD dollar index (US Dollar measured against a basket of currencies) has rallied by almost 25%] we have seen INR (Indian Rupee) depreciate by only 4% in the same period. The reasons for this, in our view, are as under:
a) At a time when we have data indicating improving US fundamentals and expectations of Fed increasing interest rates sometime this year; weak fundamentals in the Europe and hence the QE (quantitative easing) have put the Euro under pressure. Continued efforts of the Japanese government to weaken Japanese Yen (JPY) have resulted in US Dollar gaining strength in 2015.
b) Improving fundamentals of India due to weaker commodity prices (especially energy prices) and better fiscal health which has resulted in continued FII investments in both equity and debt - implying stronger INR.
c) Increased efforts of the government to attract FDI would keep demand for INR higher.
d) RBI would however not want the INR to appreciate significantly so as to maintain India’s competitiveness in the global trade. Also RBI has already cut rates by 50 bps and may cut further in 2015- implying weaker INR.
If we juxtapose our view on USD with that on INR we believe INR should not be depreciating, though marginally. In such a scenario, the markets would be focusing on earnings growth of respective companies and returns from same should be commensurate to that growth.
5. What is your advice for retail investors in current market scenario?
We look at corrections, in markets and hence individual stocks, as an opportunity to buy a company, the business of which we like, at cheaper valuations. We think that investors can use these corrections to allocate more money towards those companies which they were not able to buy (or buy enough) earlier due to high valuations.
