How you are looking at markets because it does look like a lot of negatives are already priced in, the US Fed decision, the big crude move, the geopolitical tensions they are all factored in so in terms of the sector churn what are the sectors that you are betting on at this point of time?
You are right it has been an absolutely eventful two years and two months – the least to say about markets. This is reflecting in the way we look at fundamentals because the world is changing pretty rapidly between oil going to 120, it is a very different world for India fundamentally if it stays there or if oil comes back to sub-100 like it was maybe three months ago, again a very different world fundamentally for the economy, for the fiscal deficit, for the Indian rupee.
Now because of that that has a number of implications on let us say the rupee continues to be drift down if the oil stays where it is, then rupee is likely to drift down from the current levels to much lower levels so that will clearly favour all the exporters that is the metals, IT, pharma and also fundamentally if you look at these three sectors IT has actually kind of underperformed over some longer period of time year to date. So still the valuations are on its side and the business momentum is clearly in its side.
Metals a very similar story, companies are stronger. And on the other hand some domestic companies which have nothing to do like whether it is a Inox or it is a Charlotte Hotels or Mahindra Holidays. They have nothing to do with the global stuff but yes they have something to do with inflation. So I think it is going to be that kind of approach in looking at fundamental picks.
What is your take as far as the entire metals as well as auto space is concerned?
Basically the numbers will not be kind of strong but more important is how over the next couple of quarters with metal prices, oil prices, commodity prices being high that is going to eat into margins of auto companies so the margins are going to come down and I think earnings cut as a result to the extent of maybe 10% to 15% downgrade in earnings is possible on the back of this because the price hikes while they took some amount of price hikes last couple of quarters, it is unlikely that they will be able to maintain that kind of momentum into the next two quarters. And then after that you are going into monsoon and that is not a great period for autos. So net-net in between we are likely to see a period of downgrade in earnings for autos.
What will your top bets be for the coming week? We have seen this week the likes of ITC, Reliance, Zee made a big comeback; are there any specific counters that you are betting at at this point of time?
I think you kind of have the right names. In terms of Reliance, I think it will clearly continue to do well. IT to an extent, yes it has already had a fairly good rally but again as we go closer to IT companies reporting in less than a couple of weeks that the expectations will kind of pick up given that Accenture has had very good earnings results. In terms of ITC, I am not really sure and chemical companies, some of the companies kind of treaded water over the last couple of weeks or so. I think there you can see some amount of renewed momentums again because the earnings pre-views are likely to start coming which are likely to be good for companies like SRF.
