We expect improvement in earnings over last quarter: Taher Badshah, Motilal Oswal Asset Management

In a chat with ET Now, Taher Badshah, Motilal Oswal Asset Management, says In case of PSU banks, the rate of slippages and whether that moderates Q on Q will be watched. Edited excerpts

ET Now: What do you do in a scenario like these because you guys believe a lot in buying value irrespective of where the price may fall? In case of PSUs which have been attractive and available at a discount because of some stake sale action, would you use such opportunities to buy into these PSUs?
Taher Badshah: It all depends upon the individual company and its positioning. Whether it is in the PSU space or the private sector space, there are interesting companies which enjoy good market share and fulfil conditions of being good quality companies in their own respective line of businesses irrespective of whether that business is a defensive or construed as a industrial or some such. So it is case to case. Although we do not own this company as a matter of disclosure, but it seems to have the necessary characteristics which will probably lead to excitement around this name probably even in dilution. There has been run up in this stock as I understand but that has been the case with most of the midcaps in the recent past. So that is not very surprising and may be if the outlook continues to be strong based on company fundamentals then I would think that discount will only offer an opportunity for people if you like the business.
ET Now: From among the earnings that will unfold what is it that you particularly will be watching out for many defined this earning season to be the one which would lay ground for an earnings pick up it could be the turning point sort to speak?

Taher Badshah: The first quarter earnings season is here and we are clearly looking for improvement over the previous quarter. Last year, the March quarter was a fairly decent one vis-a-vis expectations. By the time it ended and especially if stripped of some of the extraordinary results out of public sector banks as well as oil marketing companies. I think the results for the large part of the balance was pretty impressive with double digit PAT growth which we have not seen in a long time. So the market is only hoping for a continuation of the same.

Ground level indications seem to suggest that it may continue to be the case even for this quarter. The key trends that we would look forward to across different kinds of sectors are;
• In case of PSU banks it will obviously be the rate of slippages and whether that moderates Q on Q. That is something which is fairly common for a large part of the sector which is a very important part of the market. • The trend of moderating margins for some of the sectors which are exposed to commodity raw materials such as autos or industrials where we will have to monitor the extent of compression that could be seen in operating margins. • The trend on consumer stocks and there it would be important to see the top line growth as to what is happening in that area and whether we are seeing for the moderation in terms of the revenue growth of these companies.

ET Now: Kotak, Yes Bank, HDFC Bank, a bunch of these high quality names are trading at life highs, valuations may be expensive, do you think they will still generate buying interest?
Taher Badshah: Sure, I think we will continue to see interest in these names although they look expensive on the face of it but we have to remember that, they are the best apparently on growth going forward and they are kind of growing even at a decent clip even today.

We saw that in the case of IndusInd Bank and we are probably going to see that in the other names that you mentioned as well. So I think their ability to continue to gain market share out of some of the mid tier or these smaller public sector banks and perhaps even some of the larger public sector banks continues. They are continuing to grow on their consumer piece very well and I think they are best capitalised as well going forward from the perspective of availability of capital to fund growth in the future.

So it think they will continue to demand premiums and growth is a little understated for now for them and it can only get better as the economy picks up. So I think the interest level in these kind of banks will continue.

ET Now: The other quick summary that I wanted from you is on the metal names. Are you selectively nibbling into steel or either the ferrous or nonferrous names at all?
Taher Badshah: No, we have not. So we have not added. We do not have any exposure right now to pure metal commodity names but from a fundamental standpoint, I think this is another sector where there will be an expectation of an improvement on quarter on quarter basis.

Typically the March quarter tends to be the strongest quarter for the metal companies but I think there is an expectation of a fair degree of improvement even in this quarter and we see prices of many commodities actually moved up further during the course of the last three months. So I think there is a fair bit of expectation in terms of acceleration of earnings or improvement of earnings for metal companies. But yes, as of now we do not really have any exposure directly to any of the names in this sector.