 "Margin expansion of 100-200bps seen in Q4")
In the midst of the fourth quarter coming to a close and markets on the upswing Yogesh Nagaonkar, VP-Institutional Equities, Bonanza Portfolio shares his views with Tulemino Antao on the trends, earnings expectations and sectoral outlook going forward. Edited Excerpts:
What is your take on the markets and what levels do you see for the Nifty in the medium term?
We do not see Nifty going beyond 7600 and believe it can test 6800 in the medium term on account of global cues. We feel one rate hike by FOMC is on the cards, we do not feel Yuan devaluation boosting exports for China and we certainly believe the world second largest economy is headed for slow growth. World over all central banks are aggressively buying bonds but that fails to spur up their economy and in our home country we expect flat earnings which will again pull markets down. I feel all these global cues will inevitably drag our markets down. Also the trouble at Italy are mounting considerably and we feel that both Italy and Greece will be appoint of concern going forward.
What are your expectations from the fourth quarter earnings (ex-BFSI sector) on a sequential basis in terms of bottomline?
We expect earnings to be overall flat in terms of growth but we feel there would be 100-200 bps margin expansion on account of lower interest rates and commodity prices. Also sectors which are been struggling for while viz metals, capital goods, real estate will continue to struggle.
Apart from NPA pressures state-owned banks are witnessing rise in credit costs. What impact do you see on their net interest margins going forward?
We feel in this fourth quarter 80% of the dust would get settled in terms of recognizing of bad loans and 10-20% would be passed on to Q1FY17, yes credit growth remains a key problem for banks as Governments recapitalization is very meager in terms of the NPA problems the banks are facing. Our best pick remains IDBI bank and BOB PSU Space. IDBI on account of privatization of the bank and aggressive efforts to turnaround banks performance in the next 3 years.
Global crude oil prices have rebounded marginally from their all-time lows. What impact positive or negative do you see for oil explorers post the new hydrocarbon policy?
The new Hydrocarbon Exploration Licensing Policy (HELP) is truly a big help to the Oil Exploration companies where exploration companies get the benefit to cap the oil prices but I feel it’s too early to comment on the working of this act. Also we expect the
weakness on the crude will continue for some time, don’t see crude going beyond 40$ per barrel in near term.
With the the Upper House passing the Real Estate (Regulation and Development) Bill, 2016, what impact do you see on FDI inflows in the sector and will real estate companies now look at affordable housing segment? Which are the top picks in the realty sector?
I feel it is a step in the right direction to showcase transparency in the real estate sector. According to me, this will definitely attract FDI inflows in this sector. Real estate companies will definitely look at affordable housing segment as it is the vision
of our honorable PM Mr. Modi to provide ‘housing for all” till 2022. One big thing we envisage is that with new norms the small developers will face problems and we can see a lot of consolidation in the sector in the times to come. We are not optimistic on the real estate sector and we are underweight on it. Also we would like to closely watch how things pan out for the sector in the next 6 months.
Recent reports suggest that the NHAI has an ambitious plan to around 50,000km of road network in five to six years. Which are the companies engaged in construction of roads and highways investors can look at for an investment perspective of 3-5 years?
Investors can look at Sadbhav Engineering , J Kumar Infra
The broader market was a top performer in calendar year 2015. What is your view on valuations of Midcaps and Smallcaps? Which would be your top picks?
A I feel market in undervalued on largecaps and a slightly over valued on midcaps and small caps. Our Top picks remain Ultra Tech, Infosys and Axis Bank from large cap space and on the midcap space we like, capital first and VRL logistics from mid caps .
