Business Daily from THE HINDU group of publications
Saturday, Aug 05, 2006
Business Daily from THE HINDU group of publications Saturday, Aug 05, 2006 |
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Markets
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Interview
Raamdeo Agarwal of Motilal Oswal Securities says the sentiment in the market is still shaken due to the pace of decline in May. The earnings growth has been surprising and there are some signs of overheating in the markets, he says, adding the growth is unsustainable. There has been a 27 per cent topline growth and 34 per cent bottomline growth overall. He predicts that Q2 earnings may be as good as Q1 and the cost of credit may moderate the growth, post-Q2. Excerpts from CNBC-TV18's exclusive interview with Raamdeo Agarwal of Motilal Oswal Securities: Are you happy at the end of what you have read this time from India Inc? Yes, it is really surprising. If one looks at almost 1,800 companies, which have come out with their aggregate results; the turnover is up 27 per cent and the bottomline is up a full 34 per cent. Three to four days ago, it had come to 29 per cent, and since laggards typically come at the end, I thought we would end up with 26-27 per cent, but it ended up with 34-35 per cent. I think that there are some signs of an overheating in the economy and this level of growth is unsustainable, but right now India is going full blast. Some people believe that this may have been the best quarter for corporate India for the next six to eight quarters. Do you subscribe to that theory? I think the next quarter will be as good. I don't see any disappointment for the next quarter, at least after seeing the performance in this quarter. But after that, as the cost of credit is really catching up and if the expansion of credit, as the RBI says, would be restricted to 20-22 per cent instead of 30 per cent, which it is right now, then there could be some kind of a moderation in the growth rates, going forward. But since things have surprised us this quarter, it would be very difficult to predict anything beyond the next quarter. What about the backbone of the Nifty, Oil and Gas and what you would do with that space? What have you made of their earnings? That is one link in the entire corporate profit performance and actually this year Q1 is looking so good because last year Q1 was so muted, as that was the quarter where the trouble started. That was being compared with the Q1 of the year before, which had a huge oil and gas performance. Therefore, last year's aggregate corporate profits were muted because HP, BP, IOC were kind of toned down and around Rs 20,000-25,000 crore subsidy was given either from the ONGC balance sheet or GAIL and others. But this year, after the flattening of profits of HP, BP and IOC, one couldn't have done anything more and so the full blast on aggregate profit is visible this year. I think that things cannot be worse at least at the level of HP, BP, IOC, than what it was last year, although this year it is looking bad because bonds have not been credited in the accounts. How are you feeling about the market at this point? Markets have been range-bound. Is it going to be a global concern versus a domestic earnings story for a bit? The markets from the present levels could have been compressed for the following reasons. One is the speculative positions, the second is the earnings disappointment, third is the interest rate and the fourth is the global investor's movement.Looking at the speculative positions, there are not much speculative positions left. The meltdown has been total. Corporate earnings have been beyond anybody's expectations and they have been very robust. On interest rates, we have seen a steady climb and that's one factor, which can surprise everybody. In the sense that I would have not expected a ten-year paper to be trading at about 8.3-8.4 per cent, so I do not have a call on that wherever it goes. So that is one worry factor, but that also is linked to the global interest rate scenario. We are hearing that we are somewhere close to the peak in the global interest rate hikes by the US. The fourth factor is the global investors. India is still pretty okay and people are not pulling out though they are not pumping in money at the pace at which they did last year. Last year, we got about $9-9.5 billion. This year, in the first five to seven months, we have just got about less than $3 billion till date. So even if the balance $4-5 billion has to come, we could see some rapid move into that. So the crux is, how exactly foreign investors will behave during the rest of the year.
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