Don't expect an improvement in Q4 earnings: Ashu Madan

Interview with COO, Religare Securities

The key problem investors face while putting their money in India is the macroeconomic condition, says Ashu Madan, chief operating officer, Religare Securities. In an interview with Aastha Agnihotri, Madan speaks of the political turmoil surrounding the government, the Euro zone debt crisis and the outlook for Indian markets. Edited excerpts:

What is the call on the market? Would you buy anything at this level or do you foresee lower levels on the index now?
The market is in a corrective mode and looks to be heading further down amid negative news flows on account of global and domestic economic conditions and political instability. Globally, we have seen the reemergence of Euro zone debt issues with regard to Cyprus’ bailout, whereas the domestic scenario remains susceptible to political backlogs after the Dravida Munnetra Kazhagam (DMK) withdrew its support for the government. Therefore, I would not buy now into Indian equity, and would wait for a secular trend reversal before getting into any serious buying.

What have you made of the run on Asia and emerging markets (EMs) generally? Are these markets looking oversold or do you think it is warranted, the kind of weakness we have seen in them?

Emerging markets are under normal correction mode, which has fundamental reasons. So, per se, I don’t agree that they are technically oversold and would not expect any sharp bounce back.

What’s the key problem for overseas investors looking at India? Performance has been quite paltry compared to many other markets. Is it the fact that earnings are not improving significantly?
In my view, the key problem investors face while putting their money in India is the macroeconomic condition. Unlike before, global interest in India is not because of 4.5 – 5 per cent GDP (gross domestic product) growth. There is a lot of stress on the current earnings of corporate India, which is not giving any immediate hope for the future, while the problem in dealing with current account deficit (CAD) is an additional discomfort.

Will the reforms take a back seat if the government fails to garner support at the Centre?
Yes, certainly, and the markets will suffer as the recent upmove was primarily on expectations of reforms and policy decisions.

How big an event will the fourth-quarter earnings be and what are your expectations?
If the fourth quarter earnings improve to an extent that it leads to growth in the economy, it would then be a big event. However, that is not expected this time around. Also in the backdrop of political confusion, earnings effect could take a back seat.

What stocks or sectors will you be bullish / bearish on at this juncture?

I’m bullish on defensive sectors such as pharmaceuticals and fast moving consumer goods (FMCG). Information technology (IT) also looks attractive because of rupee depreciation, which will benefit software exporters. At the same time, I would advise ‘Sell’ on counters in the capital goods, auto and metal space.