A whole host of earnings will be out today. What is the top of your mind in terms of indicators? We have got Maruti, Britannia, Bajaj Finance results today.
The whole construct of the earning season expectation has changed. When we entered into the earning season in the beginning of April, we knew largely that the March numbers, because of the lower base of last year, will be good with 20-30% growth for most of the sectors like automobile, consumer durables and things like that, relatively lower 15-20% for banking, insurance companies like that and around high single to low double digit growth for consumption sectors and things like that.
Now because of the second Covid wave, the results for the March quarter have taken a beating. Now nobody is looking at that. Unfortunately the managements are not able to give any idea on how things will pan out for them in terms of sales and profitability. The second Covid wave has created a huge uncertainty. If we go by the last year’s experience as well as the earlier experiences of uncertainty in the market, the visible earnings will be there from the consumption sector, mainly FMCG and not as much from durables. We already know that all the shops are closed and even online delivery is not allowed in some states.
Similarly, the auto sector will also get negatively affected. Banking will continue to do well, as will insurance. That is where the focus will have to come on, BFSI in general, FMCG, pharma and IT. So mainly defensives along with BFSI which is, of course, a high beta sector. But one will have to take a break, wait for some time for visibility to emerge in terms of automobiles, in terms of consumer durables and in terms of some capital goods. That will be the approach going forward.
The Reliance stock has cooled off a bit and is now at Rs 1937 levels. What is your view on and where do you see growth emerging?
For the last seven to eight months, the stock has been an underperformer. We have to keep in mind that there was the background of stark outperformance over the last three years before that. The earnings are not going to be a major definer for the stock to immediately start moving up or down. It will be more of a steady business as usual. Nothing much has been happening in terms of negative development. Jio is something where things have stabilised in terms of industry balance being reached amongst the three players that are there. I do not think the result is going to be a major event for the company.
Is it a good time to accumulate private banking names? How have you read into the quarterly earnings so far?
Quarterly earnings have been declared by two large corporate sector banks —
and . Axis is lined up today and others will be following up. One or two earnings here or there have also come in. When we entered into the result season, the focus was on the earnings, but unfortunately now because of the second wave of corona, the focus has shifted to how things will pan out again in April, May, June or the June quarter. Unfortunately, nobody has an idea how things will shape up and there is some uncertainty. Short-term traders will have to do more technical basis or strict stop loss basis trading.
Medium to long term investors should continue to take a bet on every dip because ultimately the recovery will come back like it came last year. Use the dips in the market or in the share price of individual banks to buy for building up position. These banks over the years have strengthened their management capabilities, business models and have shown the strength to come out of all such weaknesses. This year it won’t be an unknown event. Last year, it was a Black Swan event and nobody knew what to do. If the banks could come out of that, I am sure this year they will certainly be able to come out of it this year. The only question will be what could be the impact in the short term.
While there was an initial underperformance, in the last few days, we have again seen the banking index and banking prices catching up. So, to that extent, there has not been much negative impact of the recent developments on the banking stock prices. I continue to remain positive on banks. Go more with the banks whose results have come in. Within that, ICICI Bank looks like a very good investment.
Everyone is buying JSPL because steel companies are enjoying a strong pricing power. This stock was punished last year because steel prices were down, power prices had collapsed and they had a lot of debt. They are reducing their debt and are focusing on steel. Is this a PE rerating moment for JSPL?
A simple answer to your question would be yes. If any company does corporate governance related improvements in its working — both in terms of ownership as well as in management terms — it tries to restructure or rather right structure the capital in terms of debt equity ratio. It tries to bring the focus on main business and more importantly it tries to reduce its investments, lending and it applies to many other corporates and many other companies and also to the promoter related entities.
The market would possibly not look that negatively if a company were to invest in some other business that is not promoter owned. Here we have instances of companies investing in businesses which are not linked to their core activities. Compared to the landed price, we are still Rs 15,000 per ton lower price of steel in Indian terms despite three hikes taken by the industry in April.
