Conversations with Arun Thukral, MD & CEO - Axis Securities
Aug 30, 2016
Indian markets have been on a run. Liquidity easing practiced by the central banks had fueled the market rally. Markets are looking for new cues for taking directions. Fed Chairperson Ms. Janet Yellen’s thoughts on the path ahead were hawkish enough to indicate that US Fed is going to tighten the purse in near future but the comments from other central banks signify that the easy money flow will not be limited.
Parliament has cleared the GST amendment bill; the states are in process of ratification of the amendment in their respective state legislatures. Post ratification by minimum 16 states (13 states have already ratified), the bill would head for President’s assent. The government expects to complete the ratification process by states at the earliest, aiming at April 1, 2017 as the target date for implementation of the indirect tax regime.
The weathermen have scaled down monsoon expectations to “normal” from “above normal” earlier and that the La Nina phenomenon has been delayed. Sowing has been 6.5% higher than the normal with a shift towards pulses. Bumper Kharif crop will help contain the food inflation thus making room for the central bank to reduce policy rates. Appointment of Dr. Urjit Patel as successor to Dr. Rajan would ensure the continuity of policy stance thus building confidence of foreign investors on policy matters.
The result season has almost come to an end. Q1FY17 has been in line with the expectations. Though the revenue growth has been below expectation, the earnings have surprised on upside. Moreover, the pace of reduction in forward earnings estimates have come down from around ~6% couple of quarters ago to ~1% in this quarter indicating that the earnings recovery is taking shape. We expect the real uptick would be visible in H2FY17 post the bumper Kharif crop. Owing to high water level in reservoirs across the nations, the chances of Rabi being a season with copious harvest are quite high.
Economic recovery & reform oriented political establishment in India makes an ideal recipe for investment pouring in from all sides. Though part of Emerging market basket, India would now be seen on individual merit basis as an investment destination, thus attracting more eyeballs. Head winds cannot be ruled out; we see one of them in the form of rate hike by US Fed in near future. Given the liquidity flow from both domestic investors & FII’s, we expect the corrections could be bought into. We recommend investors to ride the rally and add on corrections to create a healthy portfolio. Use the rally to exit the investments which have not borne the fruits and switch to the right stocks, thereby churning your portfolio.