Speaker: Anand Shah
Designation: Deputy CEO & Head of Investments, BNP Paribas Mutual Fund
Q.1 What is the short term and long term effect of GST on Indian markets? (00:12)
Ans – I think GST is one of the very big reforms that is underway and it will definitely have a huge long term benefits for the listed market place. Everybody knows that there is going to be a shift from unorganized sector to organized sector and as you see the listed market place is largely organized sector. But I think from here to next 10-15 years, the listed market place will actually have additional earnings growth because of the move from unorganized to organized leading to a faster topline growth rate or through higher margins because they will have a better pricing power vs. unorganized sector.
Q.2 What is your view on earnings growth for next 12 months? (00:54)
Ans –Specific sectors and companies we did have a very stable 15-20% earnings growth, but as a market as a whole we didn’t have a great earnings growth for last 3-4 years. From there definitely as we see recovery in government capex, recovery in consumption- both because of the pay commission, descent monsoon and to some extent because of farm loan waiver. Some recovery in exports and to that extent, we definitely see more and more sectors benefitting from this recovery leading to overall earnings growth rate in market improving significantly from where we are
Q.3 Which sectors look attractive and which one would you want to avoid? (01:32)
Ans –This entire regime change from WPI to CPI and subsequently maintaining a positive real rate of interest to the extent of 100-150 basis points over a CPI is a big change and that would lead to the savings in the Indian household from physical to financial. And that big shift from physical which is real estate and gold towards bank deposits, towards insurance, towards mutual funds is a structural change which will help financial sector as a whole substantially and for a much longer period of time. So I think from overweight perspective, we clearly like the banking and financial services sector significantly. On the sectors where we would want to be cautious remains the sector which are linked to all these technology disruptions and one of them being the IT services even much before the rupee appreciation and change in the regime or the presidency in US which is causing new doubts in the IT sector. The other sector we been sort of underweight for some time has been the pharmaceuticals where again there are twin issues of - one the US FDA inspections leading to short-term loss of sales in US markets. But even in the structurally the pricing power in US is deteriorating significantly for the manufacturers and to that extent, we are going to see a couple of years of pricing pressure there also. If I have to add one more sector currently is metals. That’s one sector which we want to stay away from at this point of time as China’s growth slows down and the global growth also slows down at this point of time. So these are the three sectors which we are wary of.
Q.4 What is your view on telecom sector? (03:17)
Ans – Frankly we are at one of the worst phases of the telecom sector in the history of Indian telecom industry. We are clearly seeing lower number of players and the M&A which are already announced and being further announced will make sure that when they emerge from this, they will emerge much stronger and much more concentrated so that pricing power will come back to sector. So today we have neutral to underweight position on telecom at this point of time.
Q.5 What is your view on recovery of corporate banks? (03:52)
Ans- I think since Sept of 2015, we had these asset quality review mechanisms started by RBI a lot has been disclosed, a lot has been come to the fore. Further there are actions by government as well as RBI to hasten or to fasten this entire resolution process including the bankruptcy code in the banking. To that extent, our take is while on the provisioning front we will see another year or two of continued extra provisioning for the NPAs, but that doesn’t mean that all the corporate banks will revive because there are other challenges because of which they have left behind which is technology. And the next journey is to invest in technology and retain the market share which is a new challenge for many banks which have not invested in technology over last 2-3 years.