Market Voice: Dinesh Thakkar, Angel Broking

'Rally may continue, as valuation favours equity investors'

As the developed economies struggle with low GDP growth, investors are looking at emerging economies, which are poised to deliver high growth, Dinesh Thakkar, chairman and managing director of Angel Broking, tells Puneet Wadhwa. Edited excerpts:

The markets have staged a smart rally in the past two sessions. Are the gains sustainable?
The developed economies of the world are grappling with low gross domestic product (GDP) growth and high leverage. Thus, high risk takers are looking at the emerging economies, which are structurally poised to deliver high growth. Further, the slide has brought the markets closer to their bottoms and the premium between the developed and the emerging markets has reduced significantly, thereby improving the risk reward for the investors. The rally is likely to continue, as the macro factors and valuations continue to favour the equity investors.

What are the chances of a third round of quantitative easing going ahead? How will it impact equity and commodity markets across the globe, especially in India?
The probability is lower, given the low success of the second round of quantitative easing. However, if it comes, it will drive equities and commodities across the globe.

Do any sectors / stocks offer value from a medium-term perspective?
Currently, equities offer better value than the other asset classes, more so over the emerging markets, with India being the prominent one. Barring fast moving consumer goods, which on a relative basis is expensive, we find value in most of the sectors.

Investors have been exiting information technology (IT), banking and metal sectors since quite some time now. Should one start bottom- fishing in these spaces? Would you like to recommend any stocks from these spaces?
We do believe these sectors, offer tremendous value. The over pessimism in the markets over the IT sector is well discounted. The valuation is quite attractive now. The case is similar with banking, as it had been beaten down significantly on the back of lower growth and asset quality concerns. However, given that India can grow at eight per cent, we believe concerns are well built into the current prices.

The Reserve Bank of India (RBI) has released draft banking guidelines. Your thoughts on the same...
When the discussion paper had been released, we were of the view that diversified shareholding could be used as one of the criteria by RBI to issue banking licenses. In line with this view, diversified ownership has been listed as one of the pre-requisite for applicants in the current guidelines, but the term has not been clearly defined, leaving some ambiguity about the eligible players.

In our view, if diversified shareholding was to be interpreted as not more than 26 per cent promoter share-holding, then amongst the large corporates with deep enough pockets to promote a bank that have also expressed interest in applying for a license, Larsen &Toubro appears to be one of the few logical contenders.

Taking into account the criteria regarding diversified ownership, as well as the RBI’s stated intention to issue a limited number of licenses based on strict selection criteria, that may include discretionary ones over and above what is explicitly defined in the current guidelines, we do not expect more than three or four licences to be issued at this stage.

While the entry of new players is bound to increase competitive intensity in the sector, keeping in mind that large private banks still have relatively small market share and the bulk of the market share is still with public sector banks, we believe the addressable opportunity is large enough for private sector banks as a group and that entry of three-four players would not be significantly disruptive.

Do you expect the RBI to raise rates in the September policy review? Have the markets factored in the same?
We are not expecting a rate hike in the forthcoming policy review and believe we are very close to the peak of the current interest rate cycle.