The Hindu Business Line : `Expect some amount of downgrading on earnings front'

Market analyst Mr Abhay Aima gives us his perspective on how traders pan out so far and what he expects to do over the year. He says the anxiety in the market was to a large extent due to the CRR rate hike and the international markets.

Excerpts from CNBC-TV18's exclusive interview with Mr Abhay Aima:

Put it into perspective, the manic Monday and two days of a pullback; how do you expect the markets to do?

I think there were reasons that were needed for correction in the market. I think there was anxiety in the market, which to a large extent either because of the CRR rate hike or because of what happened internationally has got corrected. So I think the emphasis would be on the results, the earning season.

There is, of course, the election and the monsoons, which are around the corner. But how it is going to pan out today or tomorrow, I guess that is for the technical chartists to find out.

How are you feeling about how things that might shape up in terms of earnings?

For FY-08, there will be firstly the positive surprises that you saw during the last two quarters and probably this quarter of this year, I do not think that is going to continue, there were positive surprises and that rate as it is without what has happened would have been difficult to maintain.

So I guess, some amount of downgrading in terms of earnings will happen but I think the market has more than corrected for that kind of a situation or give and take 2-5 per cent here or there.

The markets will not require serious amount of readjustment from here, you think?

I do not think so as the markets were trading at fairly expensive P/E as compared to their peers or to the emerging markets. But after what has happened, if you take a 25-30 per cent growth even if you downgrade it a little bit, I think you are looking at FY-08 at Rs 1,000 earning for the Index. And at 12,000, even if it stays flat, suddenly talking of an attractive market at 12 P/E. Having said that, I personally feel that the Indian market is going to be an expensive stock internationally.

So, it is going to trade from time to time at fairly high P/Es, normally because of the growth potential. Like any stock that has growth potential will trade at a relatively higher P/E in the market. So I think it is going to trade at a higher P/E in the Indian market for few years to come.

How do you approach the rate sensitivity? Are you in the camp that believes deep value has emerged for many of the sectors such as banking, real estate and autos ?

I think there was some amount of excessiveness. Real estate came into vogue only in the last six months or one year, so I would not really give too much of credence to this in popular sectors.

So, real estate is not the market, it is an important part of the infrastructure sector at best. There were an `x' amount of values running ahead, you had things like land banks being calculated, reminiscent of the earlier dot.com era. Eyeballs counted and that is how you valued it, so that was much needed.

What is your gut feeling though, even if this market does recover or find some strength for itself, will it become a much more narrow market to invest in or to trade?

I think that the exuberance during Diwali was 18,000, by yearend it was 20,000, that fortunately has gone and the people's belief that nothing can go wrong in this market that has also shaken up. So by that logic, I think, as the market goes up you might see people who did not sell earlier, selling. So it might be a range-bound market.

I don't see too much of a downside also. But whatever that range is and for how long it is, 2-3 months is what I think will take to form a new base. In fact, to me, if the market had gone into this financial year with the exuberance that it showed last year I would be a worried man. So I am quite happy with what actually has happened.

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