Weak earnings, high valuation ‘dangerous cocktail’: Udayan

The market could drift lower, cautions Udayan Mukherjee. According to him, a “dangerous cocktail” of poor earnings, steep valuations, sub-par monsoon forecast and waning of NDA’s “honeymoon period” has contributed to the recent correction.

On the technical side, he feels Minimum Alternate Tax demands on FIIs and India’s underperformance relative to other markets, could be prompting further selling from foreign investors, and aggravating the weakness.

However, he feels one should not chase stocks right now and should rather build a portfolio patiently.

“You want to let stock prices come to you as they have over the last one month. Many of the high quality names have corrected between 15 and 30 percent,” he says.

“That is a classic case of stock prices coming to you rather than you getting anxious about the Nifty going to 9000 and getting into a tizzy and buying stocks at very high valuation levels,” he says.

Latha: Nifty is 10 percent lower since we last spoke or at least since recent highs of 8996. What is the sense you are getting? Are we going to lose a lot more from here?

A: It is possible that we drift lower from here because we have been discussing the fundamental reasons which might have triggered such a correction in any place. I mean they were all in place. We had weak earnings and earnings which were not recovering quarter after quarter that was the fundamental weakness driver. Around it you had very high valuations compared to many other markets in India.

So poor earnings plus high valuations anyways is a dangerous cocktail for the market and around that you had other small irritants like the prospect of a not so great monsoon this time around. Even the new government’s honeymoon period euphoria is also beginning to wane from a market perspective. These four fundamental drivers were acting as some kind of a headwind to the market but what is precipitated this 10 percent correction might have been some technical triggers.

Sometime fundamentals can be bad but you need some technical triggers to just about jolt the market into corrective phase. The minimum alternate tax (MAT) on foreign institutional investors (FIIs) along with the fact that market has been a fairly ranked underperformer compared to other emerging markets, which in a tactical sense, is putting a lot of FII outflow pressure on this market. These twin technical triggers might have brought about the correction which was fundamentally overdue in any case.

Sonia: Is this an opportune time then for retail investors to jump in and buy some of these good quality names or given that we might see further weakness in earnings there are still some negative global triggers to play out, you can get better opportunities in the months to come?

A: I would hesitate to say jump in. However, I would say that you might start getting your feet wet. I would say the same thing that I said about a month back to you that this is not a phase where you want to chase stocks. You want to let stock prices come to you as they have over the last one month. Many of the high quality names, you look at the Nifty or outside the Nifty, have corrected between 15 and 30 percent – that is a classic case of stock prices coming to you rather than you getting anxious about the Nifty going to 9000 and getting into a tizzy and buying stocks at very high valuation levels.

I still think we are in that phase where you want to patient when you are buying. Yes, to answer your question in short I would look to be a buyer in this correction but you want to be a little tactical right now given that you are not feeling terribly left out. This is a phase where stock prices are giving you opportunities so you don’t want to rush in and say I need to buy today otherwise the Nifty will be at 9500 tomorrow. I think the chances of that are fairly dim and therefore you want to be patient in building a portfolio. So, yes, you need to buy but you need to buy slowly and patiently and not jump in and buy because the market will run away from you tomorrow.

Latha: The IT space, when that dip comes will you buy IT, will you advise IT space buying at all or are all the numbers all of which were unnerving below street estimates telling you something about the sector?

A: It is a difficult call admittedly because in the near-term I don’t think the market is feeling very bullish about the IT space. So in the near term there is underperformance. Keep in mind that stocks have corrected already. Most of the largecap IT names are down 10-12 percent post their earnings. These stocks usually don’t correct 30-40 percent; they trade in that valuation band of 15-20 times. When things are not great they will drift down to 14-15 times, when things are good they will go up to 19-20 times but broadly they don’t have the kind of volatility that you associate with a lot of other sectors.

These are very high quality businesses so it depends on what your risk appetite is. If you are a near-term tactical trader maybe IT will give you a little bit more grief in the near term. However, if you are the sort which wants to basically buy good businesses when things are a little rough and you want treat them as annuity kind of businesses and ride them over a three to five year period then the next three to six months – not even six months I think the next one to three months might be a good time to accumulate some of these high quality names.

When you look back after three years you will find that this phase might have been a rocky phase but on hindsight it would turnout to be a good accumulation phase for high quality business like them. Over a period of time I still think you will make money from IT but one to three months it might just give you a little bit more pain.

Nifty trading strategy for expiry: The put butterfly

In an interview with CNBC-TV18’s Latha Venkatesh and Sonia Shenoy, Motilal Oswal’s Bhavin Desai discussed his derivatives trading strategy for expiry today.

Desai said traders can execute the ‘butterfly put’ strategy. “Buy 8,200 put, sell two lots of 7,900 put and buy one lot of 7,600 put. One can expect about Rs 3,000 as the target profit in case Nifty slips down to about 7,900-8,000. Rs 1,200 is the maximum loss that one might incur out of the strategy.”

Latha: What is your Nifty strategy?

A: We are entering the day of expiry with a lot of jitters. At least some amount of respite did come in the last couple of sessions but somehow it feels like it is just the expiry event that is holding up this move that has started on the downside.

Now considering the fact that we do not have a lot of open interest buildup on the lower side even institutional buildup has indications of a lot of hedge getting created. As far as Nifty is concerned, we are advising our clients to take a hedge in May using Nifty options against any leveraged long that they might have.

So, an expensive strategy after the fall has taken place could be a protected ratio or in other words it’s called a ‘put butterfly’ whereby you go ahead and buy 8,200 base series put option, sell two lots of 7,900 put. To protect that extra sold buy one lot of 7,600 put. So it is: buy 8,200 put, sell two lots of 7,900 put and buy one lot of 7,600 put.

The entire strategy has to be executed simultaneously and one can expect about Rs 3,000 as the target profit in case Nifty slips down to about 7,900-8,000 or thereabout levels in the next week or so. Keep a stop loss of about Rs 1,000; Rs 1,200 is the maximum loss that one might incur out of the strategy.

Indian market to see 10-15% upside by 2015-end: UBS

Geoffrey Dennis, Head-Global Emerging Market Strategy at UBS expects the US Fed to start raising rates in September.

He remains invested in emerging markets and feels the India story stays intact in long-term. However, he sees some profit-taking.

According to Dennis, India is unlikely to give 35 percent returns as other countries like Korea and China are attracting some money out of the country.

He, however, advises Indian investors to put money into market now and expects a 10-15 percent upside in the market by 2015-end.

Latha: It is widely expected that the Fed will sound dovish that June perhaps is out of the way. Do you think that there can be something in the statement that might leave the market a little bearish? What are you personally expecting?

A: I would be surprised. We expect the Fed to essentially repeat the message that they gave in the last meeting, in other words, pushing off into the future the chance of interest rate hike. Given the way that the macro data has been coming out of the US over the last six weeks, last Fed meeting, it would be a surprise if they turn more hawkish. So, we expect a pretty benign statement from the Fed tomorrow.

Sonia: Having said that how would you approach the emerging markets for the rest of the year because market like India have seen a flat performance this year at best while other markets like Hong Kong, etc have gained about 15-16 percent. What is your own prognosis?

A: We certainly think having seen this tremendous run in emerging markets since the last Fed meeting six weeks ago, there is always going to be vulnerability to bad news and although we don’t expect that negative news to come from the Fed tomorrow, obviously there is a growing possibility or there is a chance that as you go through the year the Fed may start to think about raising rates in September. So, we have to keep an eye out as to what could happen in terms of a US monetary policy down the road. However, the markets are vulnerable in EM to some strong data at some point over the next several weeks. Also, we have had a very good run and valuations are getting a little stretched in the emerging markets and so we are waiting for earnings growth to come through also which would be beneficial. At the same time you had such a huge move in China obviously particularly in the local market, the A-share market that there is a vulnerability that you might get some sort of sell-off there.

So, I think there are risks out there but we think these liquidity conditions that are in place now will remain in place for at least another couple of months or so. Therefore markets will continue to do well. So, we still and the investor should still be fairly fully invested as far as emerging markets are concerned.

Latha: What about the kind of foreign investors selling that we have been seeing in India in this month itself, about USD 1.5 billion has flowed out. It is not a great deal of money in the general scheme of things but it has been consistent selling day after day practically everyday of April. Does anything happen to reverse that trend or does it even plateau out?

A: I think it will settle down relatively soon. I think India is still a good story and it had some significant profit taking as you say some significant outflows. I think what has been happening here is that couple of other markets particularly China but also of course Korea have been attracting some money out of India. Most international investors are a bit overweight India; global emerging market investors have got big net overweight on India. So there was always a possibility that there will be a pause and once you get some selling attempt to cascade a bit and so everybody wants to take some money off the table.

Obviously there has been some disappointment in India over the earning story in the last quarter, some concern about the economy and will it pick up quickly with the reforms going through and of course the recent decision on retrospective taxation of capital gains. So this all represented challenges, good reasons to take some money off the table but we think the India story is still very good and we would be advising people to start to look to get back into the market.

Sonia: Since you would advice Indian investors to start putting money into the market, what would your assessment be of what the returns could be by the end of this year? It’s been flat so far but markets like China have already given 35 percent returns this year. In the India versus China story what could the returns looks like?

A: I do not think you are ever going to get 35 percent return in India this year because the market was too expensive; it had too much of a good run for that to occur. If you take a look at the Hong Kong, China enterprise index market which reflects what global investors; investors in China, it’s a best representative of Morgan Stanley Capital International (MSCI) China – that was very cheap but it underperformed for a long time, so you are always going to get big moves there and the local market in China has got some specific drivers which push the valuations, so you are never going to get those sorts of returns. However, I would be looking to add India now and between now and year end we suspect that 10 maybe even 15 percent upside in the local market because the story in India is still very strong with good earnings growth, with good RoEs, with the reforms coming through, with lower interest rates etc. It’s a good market. We are starting to look at India in the very near term once again.

‘Market focussing on bad news, but won’t be easy for bears’

History has shown that when it is easy to play the game in one particular direction, that is when the game is about to change,” says CK Narayan, Managing Director, Growth Avenues, cautioning that the easy money has been made by the bears, and that they will now have to work harder for it.

In an interview to CNBC-TV18, Narayan says even though newsflow has been mixed, the market has been focussing only on the adverse news.

Benchmark indices have fallen nearly 10 percent after hitting record highs early last month. Slower than expected recovery in the economy, muted earnings growth, crop damage due to unseasonal rains and forecast of sub-par monsoon are some of the factors weighing on sentiment.

“Sentiment is bearish. The market wants to go down; that it is why it is latching on to every negative news,” says Narayan, pointing to the hammering even in stocks where the quarterly numbers have met analyst expectations or even have been slightly better.

According to Narayan, the market has not been respecting any support levels. The next major support level for the Nifty is 8000. But, there is no saying if it will hold.

He says it is a good time to start accumulating quality stocks that have corrected 15-20 percent or  more from their recent highs.

“But one will have to be prepared for another 100-point gyration in the market,” he says.

It is when market stops reacting to bad news that the market may be close to bottoming out, he says.

Narayan says some sectors already are showing resistance to go down further.

For instance, metal stocks and PSU banks have fared better than other sectors over the last few trading sessions.

Narayan is bullish on Tata Steel  and SAIL , and says both stocks are looking good on the charts.

Latha: It looks like an easy game for the short sellers. Will it be yet another easy day – start short and collect the booty at the end of the day?

A: It is interesting that you should mention that particular fact because what market history has shown is that whenever it becomes easy to the play the game in one particular direction, it is probably when that game is about to end. So, it has been as you rightly put it, just come to the market, show up in the market in the morning, short whatever you fancy and collect some money at the end of the day and go home. It has been as easy as that.

There are couples of things with this market. There is no dearth of good news and there seems to be a fair mix of some adverse news also. However, the fact is that the market seems to be happy concentrating only on the adverse news. So, you had good numbers coming up then they said so what and then they slammed the stock down. You can take any of those, for example private sector banks which came out with very decent numbers.

Then you had something which beats the streets expectation, let us say marginally or by some 4-5 percent or 10 percent like  ICICI Bank for example, then they slam that one also down.  Infosys comes in within whatever was expected, they slam the stock down. So, very clearly the market wants to go down; that is what is the scene, the news is irrelevant. They said Rs 40,000 crore then they made to Rs 600 crore and then they said it might even be lesser than Rs 600 crore. Was the market bothered? Not at all.

So, the sentiment is clearly bearish and so long as the sentiment remains bearish market will latch on to anything and everything and find an excuse within that to go down further. You have Federal Open Market Committee (FOMC) meeting starting off today for a two day session, the market can latch on to that as well. You will have some other results coming out which will be fair but that would be known but something which will be weak and that will be pounced on. So, that is where the trigger lies.

When the market stops reacting to some seeming bad news or some not so rosy news, I think that is when we will see seeds of recovery. I think we are seeing the first hint of that in the banking sector. You had Andhra Bank , not really one of those major ones and you had that stock posting again and it led to  Punjab National Bank (PNB) posting some gains and then the public sector banks as a whole posting a small marginal gain.

They are not strong enough to affect the market sentiment as such but then those are some hints which are coming through that the good times for the bears, the easy times that they had maybe about to roll out to an end. Now, whether it will happen at the current level of 8,200 of Nifty or as the consensus goes somewhere around 8,000 because that is the next technical level where the supports lie, so that is debatable.

The question about all the support levels because we keep talking about them and if you look at the charts, so in our progress from 5,000 to 9,000 you will have so many support levels. You will have some average, some trend line, some retracement or some technical tool giving you a kind of a support. The key thing however is that is the support being respected by the market and so far the fact of the matter is that they market has not chosen to respect any of the support levels. 8,200 is yet another support level, 8,250 on the futures – will the market support it, respect it. As far as the evidence goes up to last evening the market has chosen not to.

So, we have to go with the trend and that trend says that if we break this we will go to 8,000 and then we will do the same set of calculation again. Is it respecting it? Is the market responding to a bad sentiment or is that changing around? Collectively between those two pieces of information you will have your sign of a bottom.

Midcaps to stay attractive; positive on cyclicals: Expert

Independent expert Ratnesh Kumar believes the market is in one of the phases of bull run. “In the first phase you have lot of hope and expectation, which drives the market. Currently, we are in the second phase where verifications are required to sustain that rally. Hence, we see some consolidation and correction,” Kumar told CNBC-TV18.

The market has started the week on a firm note, with the Sensex gaining over 90 points and the Nifty trading 26 points up.

According to Kumar, the current consolidation is because the earnings are not justifying valuations. He sees another 5-10 percent downside but remains constructive on market and believes in India story.

Kumar sees upside in infrastructure stocks & cyclicals and remains positive on cement, banks and IT. He expects midcaps to remain an attractive play and is constructive on stock-specific stories in the space.

Latha: Crucial days for the market, what is the sense you are getting? How much lower can we plum?

A: You have to look at this phase of the market as one of the phases of a bull market which we are still in whatever it might feel like. In the first phase you have a lot of hope and expectation which drives the market which is what we have seen over the last 8-10 months. Then you get into a phase where that rise, that hope and expectation, the market begins to look for actual numbers to support whether economic numbers or earnings numbers. Currently we are in that phase and that verification is not happening.

So, as a result of that you have consolidation, you have corrections at times. Till such time as that verification doesn’t happen and in the mean time you also have other emerging markets actually performing. So those markets which are not performed earlier are attracting funds and so that is the reason that you are in this phase. However, eventually we will get out of this phase in a quarter or two when that verification stamp is there and then we move to the next phase of the market.

Sonia: What is the sense you are getting, have the markets bottomed out now or could it get worse from here?

A: Bottoming out meaning you can always play around with 5-10 percent here and there. There are additional factors, fund flow factors, global factors, interest rates and you have the additional factor of the minimum alternate tax (MAT) issue for the foreign institutional investors (FIIs). So you can say the downside is not more than 5-10 percent is probably how I would look at it.

However, I would also look at this phase as an interim phase whereby eventually we will get to a situation in a couple of quarters where there will be numbers support and then at that point the stocks will begin to be too expensive. So, this is actually the phase to be constructive in the market, still believing the India growth story, moving forward and taking it as an opportunity.

Latha: Are you seeing any green shoots? Couple of quarters, we have heard that before, it is not happening, the earnings are not coming. So, is it that we should be able to hear in the October-December quarter, some kind of improvement? Where would you place the inflexion point for earnings?

A: In reality it is hard to place, it always is. If I would have known then I would have been a much richer man. However, at the same time what you are seeing is that indeed the rates will fall further in India. By what time, we will have to see. The green shoots, the way I look at it is that you have the problems which were there, have stopped to get worse. What the market is unable to find today are the up trend signs or the data points and that will come in the next couple of quarters whether it is October-December quarter or somewhat before that.

It depends on a lot of other variables. Eventually the investment cycle, the credit cycle all of those things have to turnaround for the market to get the confidence that actually the growth on the basis of which we have had the market run has arrived. However, it will come, it will eventually come and at that point of the time then the market will be talking a different tune.

So, from the investors point of view this is the right time to actually be constructive and be cognizant that till this phase of the market is there, there would be range bound markets, corrections, etc and not to be unduly worried about that.

Sonia: What would you be constructive on now?

A: In the past couple of quarters you have had a phase where due to lack of growth, data points and lot of different segments of the market, the performance and money flow have focused on areas where those things were visible be it pharmaceuticals or consumers or different areas where that performance was visible; even IT services sector.

I think if I was a 12-month plus type of an outlook investor then I would look at more deep cyclical, more economy cyclical sectors like banks or even infrastructure and those areas because they will take time to turnaround but that is where the value is. On a one year basis I think those segments could actually deliver good returns.

Latha: When you say infrastructure or deep cyclicals can you be a little more specific, I mean would it be capital goods, would it be metal stocks, which specific infrastructure stocks would you point because many of them have beleaguered balance sheets in the infrastructure space?

A: To elaborate on deep cyclicals, not commodity cyclicals so that leaves metals out. What I meant were areas like capital goods, construction, industrial, banks, cement. These are the sectors where I would focus on and certain sectors which continue to deliver decent growth and you get value opportunities be it in software or other such areas.

I think they will continue to remain at the core of the portfolio. However, you may not find deep value there whereas in the economy cyclical space, is where you can potentially find deep value situations and with a bit of patience there is returns to be had out there.

Sonia: What do you do with the midcaps now because it seems like there is a lot of profit taking that we are seeing especially from the larger midcap names and people are struggling to find value in that space. How would you approach the midcap index now?

A: Midcaps I would not categorise them as one whole category like a sector. Typically they tend to be individual stories. However, as a segment what also happens is that clearly when the market sentiment is better, they are a leveraged play so to speak on the market sentiment.

So, right now when the market sentiment is somewhat iffy, you are seeing some correction, some profit taking but that will remain an attractive space in a recovering economy, in a recovering market on a 6-12 month basis. I think midcap as a space would remain relevant and it would eventually come down to stock specific stories and stock picking there and I wouldn’t just run away from there just because you have had some correction.

Will look to raise capital in next 2-3 months: SeQuent Sci

Having reported good set of earnings for Q4,  SeQuent Scientific is now looking for a long-term strategy towards animal health, says CEO Manish Gupta.

The pharmaceutical company’s Q4 revenues were up 25 percent to Rs 133 crore versus Rs 106.63 crore. The company reported an EBITDA of Rs 19.61 crore versus loss of Rs 9.28 crore.

In an interview to CNBC-TV18, Gupta says promoters have infused Rs 290 crore in the business in the past two years. The company is looking to raise capital in next two-three months via qualified institutional placement (QIP). Post dilution promoter holding is expected to come down to 60 percent from 70 percent currently.

Q: You saw a healthy 25 percent revenue growth. In fact this time your losses are much lower than last time. What does FY16 look like? When do you think the company could turn into the black?

A: The recent set of numbers, while we have not turned profitable gives us enormous confidence or kind of ratification of our strategy and gives us significant comfort of our operating performance in the years to come.

We will be turning around our operations in the current year. Some of those glimpses are already visible in the last quarter that has gone by. I am very confident of our future overall.

Q: What makes you confident? A 25 percent revenue run rate is excellent would you continue to maintain that? Would you better it?

A: In the short-run I would suggest or what is in our mind is a kind of replication of these kind of growth rates but that acceleration will occur over a couple of years when our formulation pipeline comes into play and that will take about two more years. In the medium-term I do expect similar growth rates to be maintained.

Q: What is the next growth trigger for the company? You are diversifying into human API as well, how much business do you think that could bring in board for you and what could be other growth drivers be?

A: Let me take a step back in terms of what all things we have done over the last two years in terms of bringing a sharper strategy for growth in SeQuent. Fundamentally, two years back we had embarked upon creating a global power house in Animal Health business with a portfolio of niche human API’s.

In the last 12 months we have been sharpening our strategy further. First and foremost, we sacrificed volumes for value and also expanded our scope from more emerging market formulation player to include the regulated markets.

Now that clearly reflected in the kind of investments we did in the last 12-18 months. We took certain very tough decisions of divesting businesses or closing down operations in certain geographies.

We also sold or monetised our specialty chemical business. During the year we also operationalised our new API facility at Vizag and de-commissioned our facility at Ambernath.

We also did a very strategic acquisition of Provet in Turkey. Finally, we also expanded capacities in Bangalore and also under took a voluntary license deal with Gilead.

Now some of these capacities expansions and the voluntary licensee deal would be the short-term growth drivers which are going to reflect on the human API part of the business. The long-term strategy will be towards the animal health which will take some time to play out.

New priority sector lending norms to help meet targets: SBI

The Reserve Bank of India (RBI) on Thursday revised priority sector lending (PSL) norms, adding new segments such as micro, small and medium enterprise (M SME ), social infrastructure and renewable energy under the ambit of priority sectors, which will come into effect with immediate effect

SBI  chairman Arundhati Bhattacharya says the new PSL norms will help banks achieve target in a better way.

She further says that increasing the amount of home loans for PSL is a positive step.

According to her, overall asset quality pressure may ease in near-term.

Latha: Your comment on the entire priority sector rules, does life get easier, will banks be better able to achieve the targets?

A: Definitely banks will be better able to achieve the target mainly because a few things have been tweaked. The distinction between direct and the indirect has been taken away.

number of new things have been added such as renewables, social infrastructure, food processing, so, that again gives us a lot more capability to do these things. The amount that you can take for housing loans also has been increased. It has gone up to Rs 35 lakh and Rs 25 lakh for the project cost. So, that again brings quite a large chunk of our lending into priority sector norms.

So, overall I think a number of positives are there and we are very happy that these things have happened because we believe we haven’t done the numbers as yet, it will take a little time for us to run it and see where we are coming but we believe we will be able to better achieve targets now.

Latha: There is in a sense that direct lending – eight percent for small and marginal farmers, would that be a challenge for banks for fewer branches? Banks like say a  Development Credit Bank (DCB) or a  Federal Bank or a  YES Bank they get two years.

A: It will be a challenge for them. However, for banks like us that is not a challenge at all. In fact our lending is much more than eight percent whatever they have talked about. Much of our lending is to small and marginal farmers. However, probably banks like YES Bank etc may have difficulty. However, again this is a way in which may be if we can talk about the inter bank participation certificates and stuff like that. So banks that are achieving more they can exchange with those that do not have it so that kind of a thing can happen.

Latha: Yesterday your subsidiary,  State Bank of Mysore reported a fairly deep fall, a perceptible fall in bad loans. Do you think we are nearing the end of this bad loan problem, will things get a little better for the industry itself?

A: If you remember, I have been telling you that we are seeing much less stress. So, that position continues. The only proviso I want to make is that there are few big ones so those might stilt numbers. However, overall, we are seeing stress less. State Bank of Mysore in fact has done very good given a very good set of numbers. You have seen the DCR has gone up to 69 percent. So, overall they have performed extremely well.

SBI stock price

On April 24, 2015, at 11:15 hrs State Bank of India was quoting at Rs 275.65, down Rs 1.6, or 0.58 percent. The 52-week high of the share was Rs 335.90 and the 52-week low was Rs 203.55.

The company’s trailing 12-month (TTM) EPS was at Rs 16.39 per share as per the quarter ended December 2014. The stock’s price-to-earnings (P/E) ratio was 16.82. The latest book value of the company is Rs 156.34 per share. At current value, the price-to-book value of the company is 1.76.

HDFC Bank Q4 profit seen up 20.9% to Rs 2812 cr: Poll

In January-March quarter,  HDFC Bank is expected to report similar growth to Q3. Profit may jump 20.9 percent year-on-year to Rs 2,812 crore and net interest income is seen rising 20.6 percent to Rs 5,971 crore in the quarter ended March 2015, according to a CNBC-TV18 poll.

Provisions need to be closely watched as in Q3FY15, provisions spiked 44 percent Y-o-Y and 23 percent Q-o-Q to Rs 560.43 crore.

Fee income of the country’s second largest private sector lender is another important component that will be watched. Fee income has been picking up, but is still expected to lag loan growth, say analysts.

In Q3, fee income growth improved from 13.4 percent in Q2FY15 to 14.7 percent, the highest in 8 quarters. But normalized growth was around 12 percent for fee income in Q3, driven by a few one offs.

Net interest margin is expected to be in range of 4.2-4.4 percent against 4.4 percent in Q3.

Analysts feel asset quality trends may continue being stable with gross non-perfoming liability around 1 percent, which is similar to Q3.

Loan growth is estimated at 18-20 percent during March quarter against 17 percent in December quarter and 22 percent in September quarter in Q2FY15. The fall in loan growth in Q3 was due to wholesale segment that fell to 22 percent growth against 36 percent on sequential basis. Retail loan growth was 12 percent in Q3 but commercial vehicle and SME continued to be weak.

Teva offers to buy out Mylan: What does it mean for Natco

When Teva Pharmaceuticals Industries made an unsolicitated offer to buy out Mylan for USD 40 billion in cash and stock, it ruffled shareholders of Natco Pharma a little. Natco had teamed up with Mylan to challenge the validity of Teva’s patented 20 mg dosage version of Copaxone in US courts. The agreement between Natco and Mylan states the two would collaborate to market and distribute Copaxone worldwide.

Copaxone is used to treat patients with remitting relapsing multiple sclerosis (RRMS).

Teva’s patent on Copaxone, which accounts for 50 percent of its profits through sales of USD 4 billion a year, is due to expire in September. If Teva acquires Mylan, it will help Teva offset revenues lost to patent expiration of Copaxone. Brokerages say if the merger happens, Natco may have to exit its partnership with Mylan and scout for a new one.

However, Vikas Dandekar, India Bureau Chief, pharmasianews.com suggested the deal is not something for which Natco Pharma investors should worry because the US Supreme Court has still not given its decisive verdict, though the approvals have come. Speaking to CNBC-TV18, he said even if Natco needs to find a new partner, it will stand to benefit because the generic will still have a lot of potential in terms of margins and profitability. Net-net the deal is neutral for Natco investors, with leaning towards positive. “Definitely it doesn’t look like a negative,” he said.

Meanwhile, Natco investors can take comfort from the fact that it has a lot of products in the pipeline including one from Celgene called Revlimid which will come out in the next couple of years.

The Teva-Mylan-Perrigo Triangle

Israel-based Teva has offered to pay USD 82 a share, a 20 percent premium to Mylan’s stock price on Monday. At the moment Teva and Mylan are world’s two biggest generic specialists and if the merger takes place, it would give birth to world’s biggest pharmaceutical company by sales.

While proposing to Mylan late on Tuesday, Teva said the companies are “natural fit” but Mylan CEO Robert Coury said it will oppose all efforts to ward off the offer.

Interestingly, Mylan also made an offer to take over rival Perrigo for USD 29 billion the same day as Teva. But Teva tried to impress Mylan shareholders by saying a sale to Teva would be far better deal for them than taking over Perrigo.

Wipro op margin ahead of estimates; TP Rs 700 for 1 yr:IDFC

India’s third largest software services exporter  Wipro missed street expectations on IT services revenues front that declined 1.2 percent sequentially to USD 1.77 billion in the quarter ended March 2015.

Hitesh Shah of IDFC Securities says the company’s operating margins are ahead of the brokerage firm’s expectations, driven by higher realization.

He has a target of Rs 700 for the stock from the next 12 months perspective.

Latha: Looks like a mixed bag with a miss on the revenue from Wipro but margins improving, how have you read it?

A: Revenue numbers were a little below our expectations about 50 bps or thereabouts, the management had guided to 1-3 percent constant currency growth. We were expecting it closer to the lower end of the band, 1.5-1.7 percent quarter-on-quarter (Q-o-Q) on constant currency while they delivered 1.2 percent. Given their high exposure to energy and utilities vertical vis-à-vis its peers, we already had expected them to do closer to the lower end but they missed that also marginally. On the other hand, operating margins were ahead of our expectation. We believe that was primarily driven by higher realization per head count as also tighter cost control. So clearly a mixed bag of results, little miss on revenue line, little better on the margin front.

Sonia: Have you scaled down your earnings per share (EPS) estimates for FY16 and if yes, by how much?

A: For FY16 we have cut our EPS estimate by approximately 3 percent primarily to account for their tepid outlook for Q1 for the high energy exposure. As also slightly lower operating profits.

Latha: What is the price target you said?

A: Our current price target is approximately Rs 700 for Wipro from a 12-months perspective.

Sonia: You did mention that the margins were good this time around at 22 percent but given that the company may have to go ahead and elevate their investments which a lot of other IT companies doing, do you think that could dilute margins going ahead and what is your own expectation for the quarters to come?

A: Management also said this on the call that the focus is on growing revenues while what margin they get is an outcome rather than the primary focus of the company. We expect the margins to come off over the next two years in constant currency terms. Though we expect the rupee to be a little weaker than where it has been, incorporating that rupee as well we see some marginal decline in their operating profits over the next two years.