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    Second half going to be even better for earnings growth: Swati Kulkarni, UTI AMC

    Synopsis

    Betting on domestic cyclicals, discretionary consumption stocks

    ET Now
    In a chat with ET Now, Swati Kulkarni, UTI AMC, says betting on domestic cyclicals, discretionary consumption stocks. Edited excerpts



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    ET Now: We were just enumerating the reasons of this big move in the market in the last trading sessions and there has been a brokerage upgrade coming in from Morgan Stanley, from HSBC. Fourth quarter earnings have been slightly better than estimates. Monsoon it seems like is already here and Mumbai has been celebrating some early sporadic showers. And global cues as well have been improving. It seems like Fed price or a Fed interest rate hike may just be already in the price. Crude prices have spiked up to 50 and there is some dollar weakness as well which has been witnessed in the last two trading sessions. What is your sense do you think the market is only as good to go as we approach the Brexit vote or for that matter the next Fed policy or do you think these games in the markets are now here to stay?

    Swati Kulkarni: As you mentioned, the market is factoring in Fed price hike somewhere in July so that seems to be very much there and the expectations and the movement in the commodity prices especially oil probably indicates a kind of risk on that is sitting in. We have flows which have been positive both from mutual funds and FIIs in the recent last two-three days. So from that perspective, the positivity in the market is definitely there and as some of your guests were expressing that India stands much stronger in terms of the macro improvements that we have seen. So from that perspective, on a relative platform, we stood strong and hence whenever there is a risk on we are likely to benefit. We are positive on the market, it is very difficult to say whether the current rally is going to stay for sure but as you rightly pointed out, the cues from the earning season have been pretty much positive and also we are positive about the expectations about the monsoon and hence that could lead to the recovery that we are already expecting. The recovery momentum can be seen as we move ahead and probably in the second half, we could see much better earnings trajectory.

    ET Now: How would your portfolio allocation would be? Would you veer towards some of the rate sensitives that are likely to improve on account of the economic prospects improving or the monsoon factors or would you stick to some of the defensives or consumption?

    Swati Kulkarni: Yes, clearly we are inclined towards domestic cyclicals because the thought process behind is that we are going to see a gradual recovery and with monsoons coming that could gather now momentum. So rather than heavily positioning into defensives we are towards domestic cyclicals like we are overweight on automobiles, cement, private sector banks so that is how the portfolios are positioned right now. We think that the earnings momentum could be better in the domestic cyclicals because they are probably they have seen the worst periods of course some of them benefited out of the low commodity prices but then the operating leverage benefit is yet to come. And we think that as the top line improves there are these domestic cyclicals where they tend to benefit out of low interest rate regime and also the low inflation and the government focus on the investments side of the economy initially till the private capex fix up so these are salient I would say rational for staying overweight on domestic cyclicals.

    ET Now: What else within the earnings has held out for you because clearly one of the reasons that we are seeing this bullish move in the market is also the fact that earnings have panned out better than expectations?

    Swati Kulkarni: So when you look at dissect the earnings probably the commodity price benefit is largely there in the base so you have see now tapering of commodity price related benefits on the gross margins but you have started to see some benefit still there as not everything is passed on incrementally. The other thing what we have seen in earnings is probably execution has picked up. For example, yesterday we had a large capital goods company declaring the results so clearly the earnings momentum is what is guided ahead in terms of the order inflow and the margin expansion probably has surprised the market and also the execution across the verticals has shown a pick up.

    So from that perspective yes the hypothesis that one has about a recovery going forward probably is started to get reflected in the numbers. There are some sectors of course like the corporate banking where stress is seen as likely to continue and hence these have dragged the earnings for the index but the consumption theme or the discretionary consumption. We are clearly seeing a bit of top line momentum coming in as the rural side of the economy also participate and the urbanisation as a theme should pick up. So these are the clues that we get from this earnings, clearly the second half is what is expected to be much better on the earnings growth delivery.






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    (What's moving Sensex and Nifty Track latest market news, stock tips and expert advice, on ETMarkets. Also, ETMarkets.com is now on Telegram. For fastest news alerts on financial markets, investment strategies and stocks alerts, subscribe to our Telegram feeds .)

    Download The Economic Times News App to get Daily Market Updates & Live Business News.

    Subscribe to The Economic Times Prime and read the Economic Times ePaper Online.and Sensex Today.

    Top Trending Stocks: SBI Share Price, Axis Bank Share Price, HDFC Bank Share Price, Infosys Share Price, Wipro Share Price, NTPC Share Price

    ...more
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