H2 is going to be much better compared to H1: Rajesh Kothari, AlfAccurate Advisors

In a chat with ET Now, Rajesh Kothari, CIO, AlfAccurate Advisors, says . compared to the first quarter, the second quarter is going to be a little bit better and the third and fourth quarters are going to be significantly better. Edited excerpts


Are you upbeat about what this earning season might show up by way of a trend in the earning cycle? We just had CLSA come out with a note saying there is still going to be some weakness in the interim and do not expect a strong economic revival just yet. Do you think that the early signs of that would be evident from this quarter’s numbers?

On an overall basis, that note is probably by and large right. One should not expect too much of growth in the second quarter. It is going to be like probably first quarter but the trend is surely improving. If you see all the four quarters last year, we have seen negative earnings growth from both Sensex as well as Nifty and from negativity now we are coming to a kind of a muted growth.

It was flattish growth in the first quarter on Nifty basis. But if you take out financials, you also take out some of the one offs of a few large companies, then the growth was positive. It was about close to 5% to 6% in the first quarter.

The overall trend is going to show some improvement. Compared to the first quarter, the second quarter is going to be a little bit better and the third and fourth quarters are going to be significantly better compared to the first half because the monsoon has been quite normal and consumption spend is going to happen primarily in third quarter and will further increase in fourth quarter. The Seventh Pay Commission effect, the normal monsoon effect, festive effect, the lower interest rate effect, all these things probably are going to be more visible in second half compared to first half.

A quick opinion on BHEL. While the market might be split down the middle on how to look at some of the state owned businesses, BHEL is of course from the engineering space -- CLSA is more on a believer in the story than a non-believer. They have upgraded the stock and believe better execution visibility will help the business overall. Your take?

While we would not like to make stock specific comment on that particular company, on a macro basis what is happening is that the capex story is still not recovering. So private sector capital expenditure has not yet improved. The government related capital expenditure this year is not going to be that great particularly from the central government.

From state governments, you will see a lot of capital expenditure in the current year. So while in FY16, there will be a huge central government capital expenditure, in FY17, that growth is going to come down. The private sector capex has not yet improved because capex utilisation is yet to improve. On top of it, there are few particular projects for these large companies which make thermal power related kind of equipment. These projects have not yet got the green signal . If these projects get cleared if not in current quarter, maybe in the next quarter, then few large companies in thermal power equipment segment will witness the huge order book growth.

Otherwise, the order book growth is going to be not that strong in the current year that is number one. Two, what is more important for few of the large companies which you have mentioned is the receivable issue because a company with huge receivables with projects in turn were stuck for the last 1-4 years. So, receivable is another important thing which teh market is watching very minutely. Let us see how that number moves that also can lead to some stocks getting rerated.

Do you track fertiliser space and have you looked at GNFC? It has been an active mover in the last few days?

Yes, we do track the fertiliser space. Overall, I would put it as agri input. That is a big segment and we have been positive on agri input segment for quite some time. We own a few companies in this space. What is happening is that from the fertiliser policy perspective, the government is encouraging complex fertilisers and in the last one or two quarters, the complex fertiliser prices have also reduced. So gap between urea and complex fertiliser is gradually reducing.

The complex fertiliser space can be a big story to play because as subsides keep moving down, then the EBITDA per tonne for large complex fertiliser players can further improve as the urea is anyway not much profitable. So it is more of a consumption shift from urea to complex fertiliser and, it is going to be three- to five-year play/ There is significant re-rating scope for the entire sector.