The market is moving towards recovery and there are positive signs that indicate that the growth will be back in 2020, said Sanjiv Bhasin, director of IIFL Securities. Bhasin expects high double-digit earnings growth in H2FY21.
"We would see corporate earnings reviving slowly. We expect high double-digit earnings growth in H2FY21, which would be likely the starting point of a long-term earnings upside," Bhasin said in an interview with CNBC-TV18.
Bhasin spoke at length about the factors that will drive the market growth. He also shared his views on India's telecom sector and top pick among the telecom firms.
Bhasin believes that Vodafone Idea and Airtel, which have reported massive losses in Q2, could increase prices by 200 percent to stay afloat. He, however, said most consumers would not significantly reduce consumption with an increase in prices.
Edited excerpts:
With a number of downgrades by brokerages amid the market slowdown, do you see any positive signs of growth coming our way?
Markets usually run ahead of macros and price future growth. There are three positive indicators for growth – reduction in the corporate tax rate, proposed divestment of large public sector units, and a possible resolution of the US-China trade impasse. Therefore we see growth coming back in 2020.
Corporate earnings this Q2FY20 were not as bad as expected, do you see this continuing forward in H2FY20?
Yes, this should continue and with many positive signs for growth, the impact of a corporate tax rate cut and removal of mistrust between banks and corporate borrowers, we would see corporate earnings reviving slowly. We expect high double-digit earnings growth H2FY21, which would be likely the starting point of a long-term earnings upside.
Over the past few weeks, foreign investors have begun to invest in Indian market despite the slowdown in GDP numbers. Are they hinting at a positive momentum in the future? What do you make of this?
There is chaos across global markets. Look at the Brexit uncertainty in Europe, protests in Hong Kong; compared to all this, India remains a brighter spot for foreign investors with a large consumption appetite and a stable government. For foreigners, the long-term India story still remains compelling.
India is the most expensive market among its peers. How long do you think India can sustain such rich valuations?
This is an interesting dichotomy. If you take five large caps with very high valuations out in the calculation, the broader market would look reasonable. There are many attractive price opportunities in the stocks universe available right now.
Which theme do you think will work the best at investors’ interest — defensive or cyclical stocks? Also, should the market invest in safe companies irrespective of their expensive valuations like Asian Paints or HDFC AMC?
Fresh money should go towards cyclical stocks. We see great opportunity in five Cs – cement, construction, capex, corporate banks and consumption sectors as the revival phase begins.
Quite a few brokerages see immense potential in domestic auto manufacturers. They believe that the industry is set to catch a ‘booming phase’. Do you agree with that view?
Yes, we believe the auto sector is rebounding. The auto industry in India works on aspirations and we believe consumption will revive in the second half of FY21, which would help the auto sector as well. As vehicles upgrade from BS-IV to BS-VI by March, we can see a 30 percent-60 percent upside in stocks of top auto brands and OEMs.
What is your view on telecom stocks at the moment? Between Airtel and Vodafone-Idea, which is a better pick, for a short-term and medium-term perspective?
If you compare Vodafone and Airtel, then Airtel wins hands down. It is the largest player and is planning to monetise assets. Very soon Airtel and Jio will be the beneficiaries of a pending upside in ARPU (Average Revenue Per User).
Is the long-term story of India's telecom sector still intact? Also, how do you see Vodafone-Idea's exit for the telecom sector in India?
Unless the government supports or gives a time frame on the taxation issue, they (Vodafone-Idea) will grapple with high levels of debt.
Do you have any calculations on what kind of price rises (from customers) they can take to optimally increase their revenue without hurting the business?
Today most consumers can’t manage without data and would, therefore, not significantly reduce consumption with an increase in prices. Price could be increased by 200 percent over a few years.
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