Very different landscape that we are met with this morning given the kind of rout that we are witnessing across the globe. In light of what has happened, how do you believe investors should be positioning themselves? What is the advice?
Sandip Sabharwal: Investors should be waiting to invest afresh because I believe that corrections will not end in one day. A lot of people, who have been seeing the market rise continuously after one-day fall, think that the fall is over and we should invest afresh. I think this is a time to be a bit patient. The corrective move in global markets and as a follow-through in India could last a few days or a few weeks and then better value will emerge.
Long-term directionally the trend will still be good, but I think near-term concerns related to the significant unwinding of yen carry trade, the slowdown in western economies, and geopolitical tensions rising, all of it is coming at the same time and it will be tough for India to escape from that.
When the dust settles down, where is it that one should start shopping?
Sandip Sabharwal: It will depend on how much which sector, which stocks correct, but overall I would still be positive on the auto story in India, the long-term directional capital expenditure cycle, so industrials and capex, consumer durables, non-durables – these three should be the preferred sectors as the correction plays out.
Let us get your take then on the kind of quarterly performance that Titan delivered. While the jewellery segment did stand out, how have you looked at the overall earnings?
Sandip Sabharwal: In the context of the overall consumer slowdown and what is happening on the studied jewellery side, I think the result delivery was okay. I do not think it was too bad and we could see a revival in demand play out as gold prices have corrected after the duty cuts and many jewellers are indicating a pick-up in interest because the demand was subdued.
However, Titan valuations remain stretched. So, while the growth outlook could improve from here, the valuations are still stretched. I guess that it could be range-bound for some time.In SBI, there is a slight earnings miss in the NII but it is largely in line. Having said that, they have posted the highest pat in the Nifty company so far, even overtaking Reliance.
Sandip Sabharwal: SBI results are also average. NII underperformed, some opex controls led to better profitability increases, deposit growth is just half of the loan growth which is the worst for any large bank, I think that is where challenges could come for SBI. Most analysts think that NIMs could increase going forward. The probability that NIMs could further come under pressure if they have to compete on deposits is higher and, on the unsecured side across the board, in the banking and NBFC side we have seen some stress emerging and SBI has been very aggressive in that segment. I think we need to wait and watch. The stock has rallied. It is tough to make a significant case for any big upside in the near term. The stock could correct somewhat.
The trend from the banking earnings and not just PSBs, more so the private banks, barring a few odd, Bandhan, RBL, etc, has been largely disappointing. Do you think that bottom-up case that we had built in at the start of the year that banks will now participate in the rally, falls flat and should one now wean off a little bit from the banks, barring what you already have in your core portfolio, I mean an ICICI Bank, etc?
Sandip Sabharwal: Financials in general might have a tough time this year because NIMs are under pressure, like we discussed. The asset quality seems to have peaked. The best is already there. So, from here it can only deteriorate and that can hit the earnings, reported earnings. Deposits have become a challenge.
The earnings growth for most of the banks would be challenging this year and the banks which you talked of, RBL, etc, those are the banks who already took a big hit last year and to that extent, they are not having a hit right now and they fell so much that they are correcting upwards. So, overall, financials should be a sector. It should be typically underweight in the portfolios at this stage.
In the last two instances of bad news, if you bought the market, you have been rewarded like what happened on the election result day and the Budget day. If you bought the fall or big falls, you have been rewarded. Do you think this time it is time to think differently because this is a global sell-off and those two events were local sell-offs?
Sandip Sabharwal: This time also buying the big fall will turn fruitful. But what is the big fall has to be defined. A one-day fall of 300 points in the Nifty is not a big fall when the markets have risen so much. Most of the global indices have given up all the gains for this year except maybe Nasdaq, which has also fallen substantially from the top.
So, we cannot remain completely insulated from it, especially in the context of the fact that Indian valuations are today at the highest premium it has ever been to the emerging market universe and earnings delivery has been okayish, like it is not very bad, but it is not good also which can support market valuation. So, markets need to correct, they need to give up some gain, need to stabilise, we need some time and then the stage will be set for some up move again. So, I think in the corrective move, then we have to look for opportunities to buy.
What would be that big fall – 5%, 10% – from the prism of Nifty?
Sandip Sabharwal: So, from the top, a 7% to 10% kind of correction will be good. It will remove a lot of froth from the market and we will come to valuation levels that are more in line with long-term valuations and that will be fine. We do not need to go substantially below long-term valuation because we are at the cusp of a monetary easing cycle, so in that scenario making a case for valuations that go much below long-term valuation is not there, especially in the context that we might not face the growth issues which some other countries are now starting to face.
