Equities to be best performing asset class: Axis MF

Pankaj Murarka, head of equities, Axis Mutual Fund is positive on Indian equities and foresees further gains in the market. In an interview to CNBC-TV18, he says retail participation has been on a rise lately and he expects equities to be best performing asset class going ahead. Lack of retail participation has been a key concern for the Indian mutual fund industry since entry load was banned by market regulator Sebi in 2009.

On specific sectors, Murarka is very constructive on financial and manufacturing space. He also likes automobiles. One is seeing lot of demand coming from this sector and as the economy recovers, growth in commercial vehicles and passenger vehicles will grow, he said.

Anuj: You have seen a big rally in the last few months or so, what is your sense, is this going to continue and is retail participating in the market since you represent the mutual fund industry and what is the way forward from hereon?

A: Markets have done exceedingly well over the last one year. Sometime around end of August last year, markets had bottomed out and last one year index is up about 45 percent, but we still believe — our view on equities remain fairly constructive. We are at very early stages of a long bull market.

This is a third successive year where India is recording a sub-6 percent growth, which is significantly below our potential growth rate. As growth for the overall economy accelerates towards the second half of this year and going into the next year, we think we will see a significant improvement in corporate earnings, which has been growing at a single digit rate over the last three years.

We believe that there is significant amount of latent demand that exists in the economy. As well there is a significant amount of unutilised capacity that exists in the overall economy. So as growth accelerates, earnings growth will recover very significantly and equities an asset class should do exceedingly well.

We have seen a significant improvement in the retail participation over the last six months or so. Investors have acknowledged the fact that they are looking for much better times for overall economic environment and for growth outlook for India and we have seen increased participation from investors in our funds.

Ekta: Can you tell us how much in terms of a possible percentage increase we can see from current levels for the Nifty on an approximate basis and by when?

A: If you look at the last cycle between 2003 and 2008, corporate India’s profits grew at about 25 percent compounded annual growth rate (CAGR). Corporate India’s profits grew at about 25 percent CAGR over a period of five years. Given the fact that we are just at the beginning of a new growth cycle for our economy, we firmly believe that profit growth for corporate India should accelerate very significantly because they have made significant investments over the last three-four years, which will yield results going forward. At the same time, margins for corporate India will expand significantly because they have taken quite a hit in terms of higher rates and their inability to pass higher raw material cost.

So as all of that happens, I think earnings growth will accelerate significantly. At the same time when you look at from a valuation perspective, equity valuations are pretty inexpensive, markets are trading at about 15 times forward earnings, which is somewhere closer to the mean valuations these markets have traded.

When growth accelerates, Indian markets have a tendency to trade at a significantly higher valuation than where they are. Combination of higher earnings growth and a potential valuation rerating could lead to significant returns from equities. I firmly believe that equity should be one of the best performing asset class when you look at it from a medium-term perspective.

Anuj: In terms of individual sectors and stocks, what would be the leaders for this market from hereon, would you bet on the likes of infrastructure, capital goods, banks or IT, pharmaceuticals, what do you think would be the best performing sectors hereon?

A: We have always remained very constructive on financials because we think that opens up the core of the economy and that will be one of the biggest beneficiaries of recovery in the economy. But apart from that, we are equally constructive on the manufacturing sector because we think that is one sector, which has been the most impacted because of macroeconomic slowdown that we have seen in the Indian economy over the last three years.

Just to give you perspective, India’s index of industrial production (IIP) had a negative growth or a contraction last year that was -0.1 (minus 0.1) percent and India has never had a contraction in the industrial production over the last thirty years. So that just puts in context the magnitude of slowdown we were seeing in the manufacturing sector in India and as growth recovers, I think that sector will be one of the biggest beneficiaries of the growth. We are pretty constructive on the outlook for the manufacturing sector.

Nifty to move much beyond 8000 in Sept series: HDFC Sec

 

In an interview to CNBC-TV18, VK Sharma of HDFC Securities shares his views on the futures and options market and his expectation from the September series going ahead.

According to Sharma, the September series will begin with a very strong base and will go much beyond the 8000 mark. Going ahead, he expects the uptrend in the market to continue.

Sharma is bullish on  Oracle Financial Services and Hexaware Technologies . Among autos, he likes Tata Motors DVR

Below is verbatim transcript of the interview:

Q: What would you buy today?

A: This is the third time in history that we are about to close the series on a seventh consecutive win. The next month is September and in September if you go back to 1990s, you will find that on an average in September the markets have risen 1.8, that is the calendar month not the derivatives.

There are 16 instances where it has gone up and 8 instances when it has tumbled down. However, if you go back to the derivatives, last fourteen years, maybe, out of that it has gone up almost 9 times.

Last five years all Septembers, derivatives have closed on a positive note and that in the next series you could as well as have – one thing is that the Indian rating could be changed upward it could be revised, second is Japan visit of the PM and then the US visit. All this could have some more news which could drive the markets higher.

Q: What are the early indicators you are getting for the September series?

A: September series will begin with a very strong base at 7,900. There is a level which has reached earlier then they went down and then again they have come back to this level and you look at S&P500, it has crossed the 2,000 levels.

The history says that whenever a round figure is crossed and in our case, whenever 8,000 is crossed, that will become a base and if you take one month, there is a long history for S&P, one month after a round figure is crossed, more than 85 percent of the times it is higher, three months it is still higher so that means the uptrend will continue.

I advise some kind of a Put writing for you because in those kinds of levels where yield is strong, I think we will go much beyond 8,000, 8,000, could come in a jiffy.

 

SKS Microfinance up 5%, Morgan Stanley’s top pick in NBFC

Shares of SKS Microfinance surged 5 percent intraday Thursday on hopes of strong growth in microfinance industry. Morgan Stanley says it is the top pick in NBFC space (along with IDFC ) with a target price of Rs 385, implying a 33 percent upside from current levels.

The brokerage believes medium term growth and return on equity should drive price performance of the stock going forward. It says average return on equity at 23 percent in the best in Morgan Stanley coverage.

According to the note, India’s microfinance industry holds USD 90 billion demand potential and only 15 percent is being addressed as of now. The brokerage house expects a 65 percent earnings per share compounded annual growth rate (CAGR) for FY14-17.

Meanwhile, Crisil Research last week assigned a fundamental grade of 4/5 to the country’s second largest registered microfinance company.

“With the Andhra Pradesh (AP) problem behind it, the company is well poised to grow through its country-wide presence. Its asset quality is also expected to be healthy going ahead as its AP-related loan book is completely provided for. The Reserve Bank of India’s (RBI’s) latest regulations for NBFC-MFI and the banking licence for Bandhan are positive steps towards long-term sustainability of the business model,” the rating agency reasons.

SKS Microfinance up 5%, Morgan Stanley’s top pick in NBFC

Shares of SKS Microfinance surged 5 percent intraday Thursday on hopes of strong growth in microfinance industry. Morgan Stanley says it is the top pick in NBFC space (along with IDFC ) with a target price of Rs 385, implying a 33 percent upside from current levels.

The brokerage believes medium term growth and return on equity should drive price performance of the stock going forward. It says average return on equity at 23 percent in the best in Morgan Stanley coverage.

According to the note, India’s microfinance industry holds USD 90 billion demand potential and only 15 percent is being addressed as of now. The brokerage house expects a 65 percent earnings per share compounded annual growth rate (CAGR) for FY14-17.

Meanwhile, Crisil Research last week assigned a fundamental grade of 4/5 to the country’s second largest registered microfinance company.

“With the Andhra Pradesh (AP) problem behind it, the company is well poised to grow through its country-wide presence. Its asset quality is also expected to be healthy going ahead as its AP-related loan book is completely provided for. The Reserve Bank of India’s (RBI’s) latest regulations for NBFC-MFI and the banking licence for Bandhan are positive steps towards long-term sustainability of the business model,” the rating agency reasons.

 

Ratan Tata invests in Snapdeal.com

Ratan Tata, Tata Sons Chairman Emeritus, has invested in online marketplace Snapdeal.com.

“Mr Tata has made a personal investment in the company,” Snapdeal cofounder and CEO Kunal Bahl said. The investment amount, however, was not disclosed.

“This stands testimony to the growth and success that we have seen in a short span of 4 years,” Bahl said.

Snapdeal, which has raised about USD 400 million since its inception, has invested about USD 100 million in logistics and operations to expand its presence in the USD 3 billion Indian eCommerce market.

“An investment by a legendary and respected figure like Mr Tata is an excellent validation of our focused strategy on building a long term enterprise and marks the start of a very important phase for the company,” Bahl said.

Snapdeal has seen 600 per cent growth year-on-year for the last two years, he added. Snapdeal currently houses over 5 million products across 500 diverse categories from over 50,000 sellers.

The city-based firm had raised USD 100 million (about Rs 600 crore) in May from Temasek, BlackRock Inc, Myriad, Premji Invest and Tybourne, while in February, it had received funding worth USD 133.7 million (about Rs 830 crore) from its existing investor, eBay and others.

A report by consulting firm Technopak pegs the USD 2.3 billion e-tailing market to reach USD 32 billion by 2020.

Snapdeal rival Flipkart on July 29 announced a USD 1 billion funding, which is the largest in the fledgling ecommerce sector. A day later, world’s largest e-tailer Amazon said it will pump in USD two billion to bolster business here.

Another report by consultancy firm PwC and industry body Assocham suggests that e-commerce firms are expected to spend up to USD 1.9 billion by 2017-2020 on infrastructure, logistics and warehousing.

 

UCO Bank down 8% on order of NPAs’ forensic audit by FinMin

Shares of  UCO Bank fell more than 8 percent in early trade Wednesday on reports of some irregularities in loan sanction.

The finance ministry ordered forensic audit in case of non-performing assets (NPA) of the bank and that forensic audit will find out irregularities in loan sanction, reports CNBC Awaaz quoting unnamed sources.

Asset quality of the pubilc sector lender had improved in the quarter gone by . Gross NPAs of the public sector lender stood at Rs 6,346.3 crore at the end of June 2014, down 11.6 percent compared to same quarter last year and down 4 percent compared to previous quarter. Net NPAs declined 6 percent sequentially and 15 percent on yearly basis to Rs 3,344 crore in the quarter ended June 2014.

In an interview to CNBC-TV18 on July 25, Arun Kaul, chairman of the bank had said, ” The focus on recovery upgradation has continued and that is what is helping the bank to reduce gross NPAs.

“Even net NPAs at 2.33 percent are below the last year 3.15 percent level as on June 30th and March 31st this year it was 3.28 percent. So continuously both gross and net NPAs are coming down and the focus will continue on the recovery and upgradation of distressed assets,” he added.

 

Rooting out Islamic State won’t be easy, says Obama

President Barack Obama vowed to punish the Islamic State killers of American journalist James Foley on Tuesday but said rooting out the militant group in Iraq and Syria will not be fast or easy. 

As Obama spoke, the United States was moving ahead with surveillance flights over Syria to identify targets for a potential presidential order to launch air strikes against Islamic State targets in what would be a direct US military intervention into a country embroiled in a three-year civil war.

“America does not forget. Our reach is long. We are patient. Justice will be done,” Obama told veterans gathered at a convention of the American Legion in Charlotte, North Carolina.

Obama, who ordered air strikes against the militant group in Iraq and is considering them for Syria, said he would do whatever is necessary to go after those who harm Americans.

“Rooting out a cancer like ISIL won’t be easy and it won’t be quick,” he said. ISIL is the acronym the United States uses for Islamic State.

Launching air strikes into Syria would add an unpredictable element to a civil war that Obama has taken great pains to stay out of a year after stepping back from attacking the government of Syrian President Bashir al-Assad for using chemical weapons on his own people.

White House spokesman Josh Earnest said there was no plan to coordinate with the Syrian government on how to counter the threat from Islamic State. Syria has appealed for coordination.

“As a matter of U.S. policy we have not recognized the Assad regime as the leader of Syria. There are no plans to change that policy and there are no plans to coordinate with the Assad regime as we consider this terror threat,” he said.

Obama was provoked into action by the release of a graphic video last week showing the beheading of Foley by Islamic State fighters.

A decision by Obama to launch air strikes in Syria did not appear to be imminent.

Earnest said the crisis in the region caused by Islamic State’s rapid war advances could not be solved by U.S. military power alone and would require the involvement of other countries.

“Resolving the situation in Iraq related to ISIL is not something that can be done only using American military might,” he said. “It will require the involvement of other governments in the region that have blatantly obvious interests in the outcome.”

General Martin Dempsey, chairman of the Joint Chiefs of Staff, said last week that Islamic State would eventually need to be addressed on “both sides of what is essentially at this point a non-existent border” between Syria and Iraq.

Dempsey’s spokesman confirmed on Monday that options against Islamic State were under review and stressed the need to form “a coalition of capable regional and European partners.”

He said Dempsey was working with U.S. Central Command, which is responsible for American forces in the Middle East, to prepare options to address Islamic State in both Iraq and Syria “with a variety of military tools including air strikes.”

Obama is due to meet with Vice President Joe Biden and Secretary of State John Kerry on Tuesday to discuss a range of issues, including Iraq. Earnest declined to say whether a presidential decision would be announced after the meeting.

“I wouldn’t prejudge at this point when the president would act or even at this point if he will act,” Earnest said.

 

RELATED NEWS

Holding company for PSU banks: FM okays draft Cabinet note

After sounding a stern warning to PSU banks last week, the Finance Minister has taken a major step towards meeting their long-term capital needs. The North Block has approved a draft Cabinet note, which proposes to create a holding company structure for state-run banks.

The holding company will consolidate the entire ownership of PSU banks into one company. This holding company will go ahead and raise money in order to recapitalise various public sector banks.

In his reply to the Standing Committee of Finance, the Finance Minister Arun Jaitley have basically approved not just the draft note for the Cabinet but also the Bill, which will go ahead and setup the holding company for all banking companies.

There will be nearly 21 PSU banks, which will be part of that holding company and the holding company would later go ahead and raise funds so that it can capitalise various public sector companies.

CNBC-TV18 learns from sources that consultations are at very advanced stage between Department of Revenue, Department of Legal Affairs and the Legislation Department. As and when the consultations get over, the draft Cabinet note will be circulated among ministries and the copy of the Bill will be put in front of the Cabinet for approval before it goes to the Parliament to get the legal certification.

It is one step closer for a holding company for banking stocks and going forward, may be by the end of the year, this process would be done because the Standing Committee is very clear in its recommendation that banks should look at raising funds on their own and not depend on government to infuse capital from time to time.

In 12 months nifty at above 10000:CIMB

With the India story changing, Devesh Kumar, managing director, country head, CIMB Securities India Limited sees Nifty in five digits – 10,000 plus – from a 12-months perspective.

“What is going to happen is the action that happens at policy front and problem resolution, also earnings of FY2017 will start getting factored in,” he told CNBC-TV18. He expects to see a lot of liquidity flowing in.

He says near-term earnings will not give any positive surprise, but it should be looked at from a 1-2 years perspective. “India remains a long-term story for investors,” he told CNBC-TV18. He sees a multi-sectoral rally ahead.

Latha: What we are seeing lately in the past one week has been a tilt towards midcap stocks, the flavour of the week has been midcap stocks, do you think that the best bargains lie in that space?

A: In any revival of a market, first round is where the large stocks move up and then people start debating whether valuations justify more buying in there and I think we hear a lot about people saying that whether they have missed the opportunity and bargain hunters are looking at midcaps, which is riskier but in that there are many good bets and we feel that the number of companies that move from smallcap to midcap, will be a big number going forward because India story itself is now changing, numbers may reflect this a year later but the positive view that is being made within the country and outside as well.

Latha: Can you tell us a little more about which sectors you or your investors are interested? For instance today we spoke to the Whirlpool management, they had a stellar Q1. For the first time in six quarters or seven quarters they have seen a volume growth, though the management was still unsure whether they will be able to continue the good work in the festival season which is yet to start, what is your opinion on that entire consumption space, the smaller consumer space like the Hitachi’s Blue Star and Whirlpool as well as the more expensive consumer durables like two-wheelers and four-wheelers?

A: If you look at the way the Indian economy is being monitored and policy direction and all, it is going to be a multi-sectoral bet now hereon. Therefore, you will find that infrastructure followed by capital goods, energy and then that will result in improvement in prospect of consumer goods as well.

So, what is going to happen is if you take next two years view then there will be multiple sectors, which will do well – including consumers, automobiles and infrastructure. It will be a mixed bag at public sector undertaking (PSU) banks where big changes come about. But right now, first round will be based on asset quality related issues in case asset quality related issues are addressed then there will be upside there also. Among the set of companies we have brought pharmaceuticals, automobiles, infrastructure, financial services, we have excluded banks because we feel that we will wait for some more clarity to emerge in that space. We find that investors have been meeting all of them and they are also a lot more interested in how Mr Modi thinks, in which direction he will take the country and that is where we have brought Suresh Prabhu who has given a very good insight to what is happening at policy level although he has just talked about thoughts and not about the action. People are waiting for action to come now.

To answer your question, multi-sectoral rally is what we are seeing here.

Sumaira: From this whole host of sectors that you have mentioned, what are the stocks that you would be recommending to your clients?

A: I don’t mention name of stocks but at the same time, there are plenty of stocks. For example, in infrastructure, wherever numbers are improving, people have assets to ensure reconstruction of their balance sheet, those companies will come out of this bad phase the fastest and I will say that although that may sound riskier, I think time has come where one looks at those riskier bits.

Latha: Can you give us what is your 12-months target for the Sensex or the Nifty or the percentage gains that an investor can expect over 12 months?

A: Nifty and investor gain will be two different things because that will depend on your investment strategy but at Nifty level, what we will feel is that in the next twelve months, we will see Nifty in five digits – around more than 10000.

Latha: What kind of earnings growth or gross domestic product (GDP) growth are you basing this call on?

A: What is going to happen is the action that happens at policy front and problem resolution, that and the earnings of FY2017 will start getting factored in. That is how this number will come through. There will be a lot of liquidity flowing in, that will also take the P/E multiple, so it will be because of the multiple moving up and also the E moving up in anticipation of E moving, the multiple also will move up.

CPI at 6% by 2016? RBI’s Rajan at mercy of these 3 factors

Deficient monsoon and thereby spiking food prices indicate Reserve Bank of India (RBI) Governor Raghuram Rajan’s battle against inflation is far from over. Addressing the media after annoucing RBI’s recent bi-monthly monetary policy, inflation-wary Rajan said risks to achieving the target of sub-8 percent CPI inflation by January 2015 remained. He kept key policy rates unchanged.

The central bank chief has been on a war-footing against inflation ever since he took office in September last year and has raised rates thrice since then. As food inflation had begun cool off, El-Nino fears and below normal monsoon pushed prices higher. Also, geopolitical tensions in oil exporting countries Iraq and Libya, led to supply disruptions spurring global crude oil prices, added fuel to the inflation fire.

Rajan, a former International Monetary Fund (IMF) chief economist, aims to bring inflation to 6 percent by January 2016. But is it attainable? Yes, if these three pre-conditions are met.

In its recent report, Bank of America Merrill Lynch says normal rains hold the key to the RBI’s 6 percent January 2016 target. A 5 percent swing in agro prices impacts CPI inflation by about 250bp. “We reiterate our view that CPI inflation is peaking. At the same time, poor rains pose an immediate 200bp risk. We do not agree with the pessimism now that it is rising again. After all, the key drivers of non-food CPI inflation – oil, rupee, rentals – are all reversing. Overall, this points to a possibility of CPI inflation coming-off by 200 plus bps in FY16 from current levels of 8 percent,” it adds.

Secondly, the research firm expects “imported” inflation from oil prices to subside. “If Brent does not go beyond USD 108/barrel, as our oil strategists expect, in 2015, the government could complete the pass through to domestic diesel prices latest by June 2015,” it explains.  BofA ML sees Brent at USD 100/barrel by 2018.

Finally, it says that RBI can calm down “imported” inflation by stabilizing the Indian rupee. BofA ML expects the central bank to continue to recoup forex reserves to hold Rs 58-62/USD, assuming that the US Dollar settles at 1.30s/Euro. “We have estimated that 5 percent depreciation impacts CPI inflation by 100bp. As the rupee has appreciated nearly 13 percent in the last year, we estimate that an additional 50bp of this positive pass through effect is yet to come,” says the report.