What is the stance that you will be taking on banks going forward? Is it the lending services where one needs to have a larger exposure or should one focus on corporate-facing banks or retail-oriented ones? Where should one actually hold positions?
The results of most of the banks were slightly disappointing to begin with. I was quite surprised when most of these banks started going up this week. They had indeed moderated over the last one day but overall, the week has been good for the banks. The results were quite bad for most of the banks because if you look at the NPA trend and really focus on the quality of the earnings that have been reported, the proforma invoices are pretty large for most of the banks. You can clearly make out the distinction between two sets of banks; banks that have made good amounts of provisions versus banks that have not made good amounts of provisions. They are also struggling with their capitalisation ratio, i.e., the tier one capitalisation.
If you distinguish these parameters, you will notice that the year ahead for most of the banks is going to be a little tougher because the pro forma invoices at the end of the day will clearly result in some kind of losses to be borne with as we go forward.
As it is, we have now this vicious second wave of Covid coming in and that is going to create a whole lot of problems for the banking sector. Going forward, most of the banks will see tepid responses from the investors and if you ask me frankly, the markets are going to get a little jittery as we close out the May month.
How are you looking at some of the consumption companies that have come out with their earnings? Given the kind of commentary they have given in terms of the volume growth and given the current environment, what is it that you are expecting in terms of trends from consumers?
Consumer companies have reported good earnings and most of them actually have reported margins against the fear that commodity costs were going up. The margin trends have been quite good. Volume growth, of course, has been in double digits and that is what was expected from most of the consumer companies. We also know that the logistics are unaffected due to government’s lockdown measures.
Given this situation, for most of the consumer companies who are dependent on logistics companies, there is a lot of e-commerce kind of distribution happening. There are also a lot of digitisation moves that we are seeing. We will encourage most of the FMCG companies to maintain their growth trends ahead.
However, I still believe that the margin trends will weaken in the first quarter because there now seems to be a lag effect of the commodity cost push that we had seen come into their earnings in the first quarter. So again, going forward it will be a little bit negative for FMCG companies. The margin trends will be weaker. But the only good point that we should acknowledge here is most of them should be looking at better volume growth as we move ahead.
What is your outlook on the entire infrastructure/capital goods space? What is it that you are factoring in by way of the execution of the ordering trends in light of the second wave?
Most of the infrastructure project activities are subdued as you have labour shortages. You even have material shortages coming in certain places and order intake has been quite weak. Most of the orders that you are seeing are driven by government orders, which are pending for several months and therefore being expedited now. There is no fresh capex intent that we are seeing in a big manner and therefore, the overall capital goods and infrastructure space is going to be a little weaker.
Also, remember that the inflation is perking up a little bit and we sense that somewhere, the RBI will have to step in either with the rate increase or an outlook that tries to tighten the overall money supply situation so that inflation is in a way reined in. Any rise in inflation and thereby rise in interest rates does not augur really well for most of the infrastructure companies or most of the capital goods companies. So the outlook remains quite weak for the capital goods companies.
