Meanwhile, he does not expect significant share price movement during the earnings season for banks. He prefers betting on private banks than public sector lenders.
Below is the edited transcript of his interview to CNBC-TV18.
Q: For last few days, we have consistently seen Domestic Institutional Investors (DII) on the sell side, while Foreign Institutional Investors (FIIs) have been on the buy side. What is your call? Are we looking a bit expensive? Is there a bit of complacency now?
A: From the equities, for the long-term perspective of 1-2 years, are extremely in a good position to buy at the current levels. In the very near-term, when the market has rallied so much is a cause of worry. Moving into the current results season, we are not very optimistic.
Maybe Infosys has done very well and few private banks also would probably do so. But, overall among top 200-300 stocks, we would see a significant amount of deceleration in earnings this quarter. But, most of it is priced in, especially in the last two years or so.
The entire manufacturing side has been going through a severe slowdown. There have been hardly any new capital expenditure announcements in last 1-2 years. We do not expect anything to happen in the next 3-6 months till the elections are away.
However, from the long-term perspective the share prices are already factoring in a significant derating in terms of earnings growth. It is a time to accumulate, especially for the long-term investors. Whichever the way the election outcome would be post February-March, corporate spending will begin to take place. That will be the key driver of the equity markets overall.
Q: Market leadership is usually provided by most of the banking stocks. You spoke about the possibility of a few private banks, but are the possibility of a downside surprise from the PSU banks priced in? What is your expectation of how we are likely to shape up post the banking earnings?
A: In the last one to 1-1.5 years, it has been about 10-15 stocks which have been driving the market performance. Excluding those, the rest of the stocks are really near to their all-time lows or at least 3-5 year kind of lows.
The flows are important. The flows which are driving the market in last one-one and half years have been the FII flows. If you look at DII flows, even if you look at insurance companies like ours we have been consistently seeing outflows from equity funds. It has been the cause of worry for the broader market as such.
Unless, we see the domestic investor starts coming into the equity market, this trend of leadership will probably continue with a few 15-20 stocks itself. The big overall equity market returns will look good only if the domestic investor starts coming in. FIIs are a little bit of macro investors whereas domestic investors are much more bottom-up kind of investors.
Within the banking space, the PSU banks, especially the prices may have come down a lot. Even if the earnings are going to be disappointing, there may not be a significant fall in the share prices.
Private banks also have corrected quite well. We do not see significant surprises, especially on the negative side from the private banks. Private banks continue to do well. Our preference continues to be more on the private banking side.
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