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Q3 nos warrant fall; Budget hopes, FIIs pushing mkt: Citrus

The last leg of earning season has proven to be a disappointment, but key February events, namely RBI monetary policy, Delhi election outcome and Union Budget along with delayed FII inflows are keeping market up, says Sanjay Sinha of Citrus Advisors.

He cites reasons why one should hold on to PSU banks and also be optimistic on oil and gas companies.

Below is the transcript of Sanjay Sinha’s interview with Ekta Batra & Anuj Singhal on CNBC-TV18.

Anuj: The last leg of earning season is clearly giving us more disappointment then earning hits. Do you think the market should correct a bit or do you think the hopes of a pre Budget rally would put a cap on correction as well?

A: The quarterly results are clearly a disappointment in fact more of a disappointment then was earlier anticipated. If you go purely by as to whether the market has correctly factored in the valuations I think there is room for correction here. However, what has kept the market afloat in most part of January has been the sheer gush of foreign institution investors (FII) liquidity which was lukewarm in the early part but became quite strong in the later half.

The second factor which has kept the market afloat is the anticipation of events. February being a very rich month in terms of events, Reserve Bank of India (RBI) monetary policy is over but we have the Delhi election outcome on the 10th and the Union Budget on the 28th. So the anticipation of events is going to keep the market fairly on the tenterhooks as far as the Delhi outcome is concerned and optimistic as far as the Budget is concerned.

Ekta: How would you approach PSU banks now considering the disappointment that we have seen? It is only State Bank of India (SBI) that is left from the big large banks to report numbers now?

A: If you look at the calendar year 2015 it will clearly belong to cyclical and if you have seen the trend of the market over the last six months we have seen that every time the market has corrected the cyclicals have corrected more and the banks and particularly the PSU banks have corrected more. We need to take the call as to whether the macro economic situation is going to improve from here. If that is going to happen the delta of the benefit will go largely in favour of the PSU banks. If you take that has the given assumption then it makes sense for us to accumulate the PSU banks on dips rather than exit from there every time the quarterly results are declared.

Anuj: Oil and gas how would you approach that because we have seen a decent bounce back in crude prices but we are also hearing that a new subsidy sharing mechanism would be formed for next financial year and that looks like could be good news for up stream?

A: I had this point of view that there would be pressure on the oil and gas in the short-term given the governments greed to accumulate revenue from the oil and gas companies. However, if you go back and see as to what the NDA government did the last time they  were in power, you will see they dismantled administered pricing mechanism (APM). Therefore, I believe that as their underline policy philosophy goes, they would surely be far more aggressive in terms of dismantling all this structural abnormalities that are there in the pricing of petroleum products.

Add to that is the fact that they need to raise capital by way of disinvestment and the biggest disinvestment can happen from the oil and gas space. So in short-term while there may be temptations for a government to take away cream from the oil and gas companies, on the medium to the long-term the clarity in the sector and the crude price now becoming more favourable for the subsidy bearing companies, we can be more optimistic on the oil and gas space.

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