Ramanathan K, CIO, ING Investment Management India talks about what will drive the market direction in the short term and sectors he is overweight on to an interview with ET.
What do you expect the earnings delivery to be in Q4 and the commentary to be for FY13?
One good thing about the expectations vis-a-vis the IT results is that the expectations are poor. Managements like TCS as well as Infosys have already guided for poor volume growth. We are going into the IT results season with poor expectations, which is actually positive. From an overall perspective, the budgets for FY13 or CY12 in the case of global companies are at best flat. These boards are well for a 13% to 16% earnings growth for next year. Valuations in this space, especially in the large cap are in the range of 15 to 17 times. Valuations are not expensive. If you have issues in terms of global flows because of GAAR provisions, rupee should depreciate further. If there is a selloff, that should again be positive. Overall, we are positive on the space and overweight on the sector.
What happened today with regards to PNGRB and the margins for IGL, is not an isolated case of interference. Does this sour the mood for investments?
Yes. The step taken by PNGRB has been very negative for the company and we have seen a significant de-rating as well as expected EPS downgrades for this stock. It is negative and we have had several such cases of orders being implemented which significantly impacts profitability. We have seen the case of ONGC, Coal India where there is no clarity on implementation in terms of how much they have to provide for, if they default on 80% FSA. We have seen the GAAR provisions which are supposed to be retroactively implemented. All these do not give a positive connotation for global investors.
What can the market do in the near term given the volatility?
The key issue which is troubling the market is GAAR provisions, its implementation and applicability. We need more clarity which is expected over the next few weeks. If FII P-note holders, private equity hedge fund long only guys are being targeted, that is not going to board well for the market. We need capital flows. We have a huge current account and fiscal deficit. You would have a significant pressure on the rupee if there are no flaws on the capital. And, it is going to be very negative in the markets. Clarification on the GAAR provisions will drive the direction of the markets in the short term.
What does one do with Coal India, BHEL, and GAIL?
I cannot talk on specific stocks. Vis-a-vis the oil and gas sector, we are underweight in some of the names which you mentioned. I would not like to paint all companies in the PSU space with a negative brush or a black paint. These are stock specific issues. From an overall perspective, regulatory changes are impacting stock performance as well as profitability negatively. Wherever the risks are perceived to be pretty high, we would surely look to go underweight.
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