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“Earnings Downgrades Are Bottoming Out”
Earnings downgrades are bottoming out, and in the recent quarter topline growth has been positive, which is encouraging. I’m overweight on India relative to other countries
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ON THE BANKING SECTOR
India is a positive story. But the key measure I’m looking at is bank re-capitalisation. Problem loans are now 17 per cent of total loans. We need to see the government carry on reforms on the banking front. If no structural-reforms progress is seen, the India story will be handicapped.
The departure of Raghuram Rajan is an unfortunate development. From a more narrow, stock market standpoint, that he is leaving means that monetary policy is likely to be easier, which in the short term will be positive for equities.
ON MARKET DIRECTION
The market is now on a path of significant consolidation. In my view, with no evidence of private sector lending, we will not see an extended rally. Frankly, this will not happen unless we sort out the banking issues. I’m hoping that the banking sector is re-capitalised. I would have been happy if Rajan would have continued as RBI governor.
ON EARNINGS GROWTH
Earnings downgrades are bottoming out, and in the recent quarter topline growth has been positive, which is encouraging. I’m overweight on India relative to other countries.
ON FOREIGN INVESTORS
Last year, there were earnings downgrades but relatively less foreign selling. Part of the reason is that there is a lack of good stories across the globe.
ON WAY FORWARD
In the long term, the consumption story is fine. Obviously, one area where one would like to see more progress is job generation. The housing market is bottoming out. The only missing story is the private sector investment.
“We Are At The Start Of A Cyclical Uptick”
ON BREXIT IMPACT IN INDIA
For India, Brexit is overall positive. When blocks break up, negotiating power goes down. Trade deals can potentially be done on better terms with five countries, than with one bloc negotiating together. In the short run, there might be uncertainty. In the long run, it could be economically better. For instance, IT firms may have to separately build systems in both UK and Germany as against building one EU system.
ON INDIAN GROWTH
We are getting our act together and moving towards a common market with GST. Our growth will attract disproportionate capital flows. While Europe is breaking up, we are uniting. While Europe has negative interest rates, we have high interest rates. So, we are a safe haven, the real golden asset class.
ON THE MARKETS
We are at the start of what is a cyclical uptick. In a few years, this could turn secular, and that will be excellent. We are making 15 per cent ROE. If we get mean reversion of profits reaching 6-7 per cent of GDP from the currently depressed 4-5 per cent, an earnings uptick to the tune of 75 per cent in four years is likely. On that, it is not unrealistic to see 50000 on the Sensex. While we won’t repeat supercharged earnings growth of 2003-08, we are structurally poised to grow earnings at 25 per cent CAGR.
ON WHAT NEXT
We have the leadership. We have the demographics. We have the entrepreneurs. We have the companies. We must invest with that hope. Keep the faith.