Market Voice: Sandeep Singal, Emkay Global

'Earnings upgrade unlikely in Q3'

Sandeep Singal, co-head, Institutional Equities, Emkay Global, tells Ujjval Jauhari that banking stocks may need to consolidate and correct before they reach attractive valuations. Edited excerpts:

What is your reaction to the Reserve Bank of India’s (RBI’s) policy review?
I believed since liquidity was tight, it could lead to a cut in the cash reserve ratio, or major rate cuts, as expected by some.

Instead of slacking the statutory liquidity ratio temporarily, RBI fixed it at a permanent 24 per cent, which gives banks some capital for lending to the industry. Also, it has increased the limit for market operations to Rs 48,000 crore. Overall, the move is good for the industry.

Inflation has been hard to control. Further increase in interest rates by about 50-100 basis points is quite possible, but we don’t know whether it would come in January or April. It would depend on the data at that point in time.

Does the high interest rate scenario change your views about the banking space?
The banking sector has been one of the best performing in terms of returns because of the fantastic growth and valuations. But, the sector is over-owned now.

Although there are no serious negative triggers, there is no positive trigger, too. In terms of capital formation, the credit growth is not coming back. Thus, banking stocks may need to consolidate and correct before they reach attractive valuations.

What are your expectations from the December quarter results of India Inc?
We saw no major earning upgrades in the second quarter and most of the forecasts were in line with expectations. I don’t see any major upgrade. Also, there is a possibility of any sector or stock not matching expectations. Thus, chances of a downgrade are high this time.

Possibly that is the reason why markets are correcting, as they have discounted the positive scenario and are not able to find any factors to induce forward buying.