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    ‘Both PSU and private banks will continue to outperform in Q3’

    Synopsis

    Right now it is the internet and the technology shares of China and the consumption oriented ones which are getting money, so a little surprising. Secondly, given the dollar level, normally you would see emerging market inflows coming in and growth stories like India tend to benefit whenever the dollar index starts to go down.

    ‘Both PSU and private banks will continue to outperform in Q3’ETMarkets.com
    “We were expecting fresh FII inflows into India starting January. Maybe it has got delayed by a bit, but definitely we do not expect FII outflows to continue, it is already at multi-year lows,” says Ajay Bagga, Market Expert.

    ET Now: The key trend this, rather since the start of this year, has been that India has underperformed. There was quite enough positive news but we managed to just shrug them off. What do you think is happening and is this trend of India underperformance likely to continue?
    It should not continue to answer the second question. First, it should not continue, we were not expecting this kind of Rs 15,000 crore of FII selling in the new year because normally this gets done by December 15 of the previous year, in case rebalancing or any liquidity withdrawals have to be done.

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    It does not happen at the start of a year because now it is the time for reallocations, it is not a time for withdrawal from market so it surprised us and nobody has a big fix on this. If China was seeing outflows then you could have explained it because MSCI EM China would be 40%, we would be 15% but China has nearly $6 billion of inflows in January while we have seen outflows of nearly $2 billion.

    If you pushed back from 1st November, China has seen a rocking $21 billion of inflows largely into its Hong Kong connect shares. Mainline and A shares are catching the fancy of investors. Right now it is the internet and the technology shares of China and the consumption oriented ones which are getting money, so a little surprising. Secondly, given the dollar level, normally you would see emerging market inflows coming in and growth stories like India tend to benefit whenever the dollar index starts to go down.

    So, we were expecting fresh FII inflows into India starting January. Maybe it has got delayed by a bit, but definitely we do not expect FII outflows to continue, it is already at multi-year lows. The reason, at times, cited for the amount of ownership of FIIs of India is that India is at a premium. India has always been at a premium because your growth is at a premium to the world. So we are always at a premium and between 17.2 and 18.2 one year forward that is not that big a gap.

    ET Now: Also wanted your take regarding the IT numbers that came this week we had TCS reporting numbers, which were a bit mixed. HCL Tech had a good beat coming with the deal wins being at eight-quarter high as well as we had seen a bit of a guidance contraction. How are you reading the IT numbers and what is the way to play it going forward?
    Ajay Bagga: Normally this is a muted quarter, so expectations were lower and they have been higher than the expectations but just to go back a little higher to view the entire scenario we are not expecting more than about 15% to 17% revenue increase for the entire Nifty pack this quarter and profit gains of 9% to 11%.

    It is a muted quarter unlike what you would expect from a high-growth economy like India. In IT, headwinds are coming from Europe and that was also commented about by HCL Tech management in their commentary. New orders are not flowing in from Europe. In the US, it is still continuing but the management teams are a little conservative. I think out of the big three, the Infosys management was the most upbeat, the others were a little wary. Market has had a relief rally of sorts when on Friday the IT stocks went up by a bit but I think two quarters of headwinds remain till clarity emerges on the global macros and companies get the confidence to give new orders. I think you would see slightly flattish performance from Indian IT.

    ET Now: The week gone by was all about IT companies and the coming week will be all about FMCG as well as financial names. Which are the top bets from these two sectors?
    Ajay Bagga: I think banks will outperform a lot. The second quarter outperformance will continue for quarter three. Multiple triggers are there, multiple tailwinds are there for banks, so get into banks. We like both the private sector as well as PSU banks. The top end is where you should focus on, they will continue to gain market share. As far as FMCG goes, volumes are coming down while price action means that the revenues are held up. What we are expecting is with the palm oil prices having come down over the last quarter and with other agri commodity prices down and input costs also going down, hopefully the margins improve. That is something that we will be watching but, FMCG is quite fairly priced. I would say out of the two, banking is the clear favourite.



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    (What's moving Sensex and Nifty Track latest market news, stock tips and expert advice, on ETMarkets. Also, ETMarkets.com is now on Telegram. For fastest news alerts on financial markets, investment strategies and stocks alerts, subscribe to our Telegram feeds .)

    Download The Economic Times News App to get Daily Market Updates & Live Business News.

    Subscribe to The Economic Times Prime and read the Economic Times ePaper Online.and Sensex Today.

    Top Trending Stocks: SBI Share Price, Axis Bank Share Price, HDFC Bank Share Price, Infosys Share Price, Wipro Share Price, NTPC Share Price

    ...more
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