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Less nervous of banking system now; like ICICI, SBI: Kotak

Sanjeev Prasad of Kotak Institutional Equities expects some more earnings downgrades going into the fourth quarter. In an interview with CNBC-TV18, Prasad says the rate hike by the Fed and its commentary were both on expected lines.

Prasad sees the the market giving 10-15 percent returns over the next 12 months, as the ongoing reforms slowly translate into an economic recovery. He expects the Sensex earnings multiple of 15 times FY17 earnings to hold because of improving macros.

Prasad expects significant growth in Reliance Industries over the next 12 months.
On the banking sector, he says he is less nervous compared to the situation six months ago.

He is bullish on ICICI Bank and SBI as he feels much of the bad news has already been discounted and that the stocks are available at attractive valuations.
Below is the verbatim transcript of Sanjeev Prasad’s interview with Latha Venkatesh and Sonia Shenoy.

Latha: What do you make of the impact on emerging markets? At the moment, we see a mild shade of green on most of the emerging markets – Nikkei of course, is up 2.2-2.3 percent, but the other markets are up about a quarter percent. So, should we expect that it is just a little bit of short covering and emerging markets are not going to find too much favour in the days to come as well?

A: My sense is that this was on expected lines. Even the commentary is what most people assumed that you will see about three-four further rate hikes in 2016. So, I do not think this is really a negative surprise or a positive surprise in that sense.

The important thing for India now would be what the domestic triggers are. So, we have to look at what is happening in earnings growth, what is happening to reforms story particularly goods and services tax (GST). And on the global side, if you see some problems emerging in either the US high yield bond market or in emerging markets, the corporate sector debt has gone up quite significantly, particularly the foreign currency private sector debt in certain emerging markets. So, you have to watch out for these three-four factors over the next few weeks.

As far as earnings are concerned, do keep in mind that we will head into the quarterly season in the next one month or so and you will still see some earnings downgrades during the course of the next quarterly season. So, as of now, we are looking at about 20 percent earnings growth for the full year for March, 2017, I suspect and based on whatever bottom-up analysis I have done, it looks like going to more like 15 percent which is still a very credible number compared to something like 6 percent number which will end up March, 2016. So, net-net based on all the factors that we are looking at, the US Fed event is out of the way, you will some downgrades which will probably keep the market here for some time, but as we go along into next year, the fundamentals are reasonably strong to see some positive returns in the next calendar year.

More to follow…

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