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Companies with higher domestic exposure are doing well
Neelkanth Mishra, Credit Suisse
Mar 18, 2016 | Source: ET Now
- Where is the growth and where are the earnings?: India is actually doing pretty well. Even two-wheelers, which were earlier growing slowly, are now finally showing some strength. This is despite the fact that a large part of India reeling under drought and agricultural economy being actually under stress. So, the economy is actually doing very well. There is good growth. If you look at the December quarter earnings, more than a third of the companies which have seen their operating profits decline, but one-fourth have seen operating profits grow above 30%. Generally, companies with the earnings decline were the ones that had global exposure, the ones with 30% plus growth were the ones which had domestic exposure.
- Metals or cyclical stocks. a dead cat bounce or a dash for trash? : I would not call that at this stage, given that how strongly things have changed in China. What seems to be happening is that the comfort that local domestic or local officials have in approving projects is now much more than what it was, say, a year ago. There is support from the Center that you can push for growth. The number of projects and property is still a problem, but infrastructure projects that are going to start off and they have started reaching that stage where they demand metals in second half of this calendar year. So, there is a serious change. My worry with the metals space in India is the high leverage. So, you can trade and this is not dead cat bounce. The dead cat bounce lasts two three weeks or may be a month.
- Underweight on financials? Yes, there is a very concerted effort and a very heartening approach from all the three entities — the PMO, the finance ministry and the RBI— in resolving these issues and no one seems to be coming up with any side agenda. They all want a theoretically rigorous solution to this problem and I can tell you from my vantage point that India is one of the few countries which is actually going out and cleaning up the banking system. For the next three-four quarters, you will continue to see bad loans getting recognised, earnings getting revised down and book value getting eroded for many banks. While it is healthy in medium term for the economy, for the banks perhaps as well, it is going to be very turbulent in the next three-four quarters. So, I would still stay away.
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