Easing credit would revive fundaments next quarter: Antique

Krish Shanbhag, Head-Research, Antique Stock Broking, said fundamentals deteriorated quite sharply in the month of October and November and easing-off credit and it should lead to revival in fundamentals for the next quarter. “That would then make investors more positive fundamentally on companies and sectors before they take long-term views,” he said.

Shanbhag, however, warned of poor earnings numbers this season. “It would be the poorest set of numbers over the last many quarters and the market is trying to discount earnings going into the earning season,” he added,

“So if one wants to build a portfolio for the medium to long term, these are good times to buy into sector leaders where once the pain period is taken care of in the next couple of quarters, you could see revival in demand across sectors,” Shanbhag said.

Here is a verbatim transcript of Krish Shanbhag’s exclusive interview on CNBC TV18. Also watch the accompanying video.

Q: What is your own sense of what we might see over the next few weeks — lower levels for this market or some attempt to fight back?

A: October saw capitulation selling across the world. The world saw losses to the tune of USD 30 trillion as far as market capitalisation goes. Some of the Bric, or Brazil, Russia, India and China, countries lost two-thirds their value in dollar terms. It signifies major selling across the board.

Having said that, fundamentals have deteriorated in the last one month. Since we last spoke in early October, we have seen a sharp correction in prices of commodity companies, [and there has been a] significant volume decline for auto companies in India.

The liquidity criteria in India is tough too. Businesses are finding it tough to get credit and that is weighing on markets given that there is some amount of demand slowdown, a large percentage of that could be attributed to difficulties in getting credit for the end-customer.

We as a broking house did a survey of auto companies and while volumes for commercial vehicles fell 50% in October, I think the demand has not fallen by 50%.

A large percentage of that fall has got to do with difficulties faced by people to get credit. That is what is driving markets.

The current quarterly results would be pretty poor. It would be the poorest set of numbers over the last many quarters and the market is trying to discount earnings going into the earning season.

Q: What do you do with all these private-sector banks now? They have come under quite a bit of fire today. Any concerns over there on earnings or on the kind of squeeze they might face with rates?

A: One would have to be selective in the names one talks about but essentially, the market is taking the view: if the industry is not going to do well and they get starved for capital, you could see defaults increasing not only for private-sector banks but also for public-sector banks. As a result of which, these concerns would begin weighing on the banking sector as well.

Q: What kind of levels will we close up the year with, you think?

A: That is a difficult call but essentially once we have seen the earnings numbers reflected in January at the end of the season, we would get a fair sense whether the October lows would remain or they will get breached.

Fundamentals deteriorated quite sharply in the month of October and November and one would like to see easing-off credit — credit becoming easier for a customer — and that should lead to revival in fundamentals for the next quarter. That would then make investors more positive fundamentally on companies and sectors before they take long-term views.

Having said that, after the capitulation selling of October most markets globally are trading at a single-digit valuation. So if one wants to build a portfolio for the medium to long term, these are good times to buy into sector leaders where once the pain period is taken care of in the next couple of quarters, you could see revival in demand across sectors. 

So the key is to buy sector leaders, which can manage this liquidity crisis and grow once demand comes back.

Disclaimer:

It is safe to assume that my clients and I may have an investment interest in the stocks/sectors discussed.