The government and the RBI have been urging banks to pass on the benefits of a rate cut to the corporates and retail borrowers as banks have a lot of headroom to pass on the rate cuts.
Earnings season has been mixed as economic slowdown impacted the revenue growth of the companies, however, an improvement was seen in operating performance (largely due to cost-cutting measures) and bottom-line (corporate tax benefits), Ajit Mishra, VP – Research at Religare Broking told Moneycontrol's Sunil Shankar Matkar.
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Q: What are your thoughts on markets? Will the market maintain positive momentum?
The way markets have recovered, it seems that markets have largely digested the negatives and likely to maintain positive bias, at least in the near future. However, the upside also seems capped, citing lingering coronavirus concern which is haunting markets across the globe. Besides, the existence of a strong hurdle at 12,300-12,400 zone would further add to the pressure at the higher levels.
Q: How do you read the up move in the market? What according to you is the reason for the post-Budget rally?
The recent macroeconomic growth indicators have been encouraging and the government measures have worked in arresting the decline in growth rates. However, the sustenance/improvement in these growth numbers would be crucial for the markets to continue their up move. Coming to the recent rally, we believe this was largely global driven and further the sharp correction in crude oil prices aided domestic sentiments.
Q: What are your thoughts on overall earnings and do they indicate any recovery signs?
Overall earnings season has been mixed as economic slowdown impacted the revenue growth of the companies however improvement was seen on operating performance (largely due to cost-cutting measures) and bottom-line (corporate tax benefits). Further, some of the corporates provided positive guidance and outlook for the long term (1-2 years).
We also believe that the government measures have begun to show desired benefits, which will lead to earnings recovery leading to improved performance by the corporates in the next 1-2 quarters.
Q: What are the sectors/stocks that will get benefitted from fast-spreading Coronavirus that forced shut down of several manufacturing plants in the world’s second-largest economy, China?
While the exact impact of the coronavirus on Indian sectors and stocks is difficult to assess, the decline in commodity prices could positively impact the profitability of sectors like auto, capital goods and other industries in which commodity (steel, aluminum, copper) constitute a substantial part of the raw material. Also, sectors like textiles, sanitary ware and ceramics players may benefit as India’s exports in this space may increase due to supply constraints in China. Also, a decline in oil prices due to the outbreak of the virus will benefit India’s oil marketing, paints and aviation companies as it brings down their input cost.
Q: Do you expect major rate cut transmission this year, after RBI indirectly asked banks to cut lending rates?
The government and the RBI have been urging banks to pass on the benefits of a rate cut to the corporates and retail borrowers as banks have a lot of headroom to pass on the rate cuts. To be fair to the banks, the rate cut transmission has started and banks like SBI and HDFC Bank have reduced rates to a certain extent.
However, any major rate cut transmission also depends on factors such as improvement in the overall health of the economy as well as the asset quality of the banks, which would make rate transmission much easier for banks.
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