CNBC-TV18's exclusive interview with Nilesh Shah: Kotak securities


Par 100 posts (V.I.P)

As long as earnings growth from most of the corporate companies sustain, there is no downside risk to the market, says Nilesh Shah of Kotak AMC. He discusses sectors that are expected to outperform.
Nilesh Shah at Kotak AMC believes that as long as the earnings growth from most of the corporate companies sustain, there is no downside risk to the market. Going forward, he also expects a big surprise in the indices from the metal pack and the rest of the commodities, which include cement, petrochem, ferrous and non-ferrous metals.
On the other hand, Shah feels that from a medium-term perspective, the auto and banking sector may disappoint for reasons more than one.
Excerpts from CNBC-TV18's exclusive interview with Nilesh Shah:
Q: Sensex is at 12,000 plus. Where do we go next and can this continue?
A: That is becoming a billion dollar question. From a fundamental perspective, I think corporate earnings continue to surprise by a huge margin. If one looks at the initial estimates, all of us were expecting a 15 - 17% earnings growth for FY07. Against that, most of the companies have announced their numbers with an earnings growth of 25% plus.
Even the guidance that they are giving, clearly indicates that this kind of an earnings growth can sustain for the next three to four quarters. That is where the big element of surprise is coming in. I think as long as these surprises keep coming, there is no risk to this market from a downside perspective.
Second, liquidity still continues to be at its best and we are seeing the full colour of liquidity play out. This could last for the next few weeks as a lot of institutional money still remains to be fully invested.
Third, from a sentimental point of view, there is no big negative news, which is coming out. From a combination of all these factors, it is going to be difficult to say that the market has topped out. Perhaps there are still some room left in this market.
Q: Where do you think leadership is coming in from now in the market?
A: If one looks at the Sensex and the Nifty and the top five names, which is ONGC, Reliance and the three software Infosys, Wipro and TCS , the five put together constitute about 35-36% of the Nifty weight. From each one of these companies, the news flow and earning numbers have been very positive. I clearly think that the risk to the Sensex from these companies is going to be very limited and if at all, they would still contribute in a positive manner.

Second, the big surprise in the Indices could come in from the metal pack and the rest of the commodities, which include cement, petrochem, ferrous and non-ferrous metals. I think this as a pack is going to be a strong outperformer.
Q: How do you see the markets move from here? Will earnings continue to propel it forward or do you think market is going to pause a bit?
A: It could pause for a day or two and there could be a couple of sessions, where there could be a general pause because of some factors or just because the market wants to consolidate. But if all the sectors are put together and companies are put together, then most of the sectors point to a situation, where they would continue to positively surprise the market as well as continue to give a strong guidance.
The couple of sectors, which perhaps may disappoint somewhere down the line, for next quarter or the quarter following that could be autos and banks. These could be sectors, which could disappoint the market from a medium term perspective. But from a short-term perspective, there is no risk to earnings as far as this quarter is concerned.
Q: What in autos are you cautious about?
A: I don’t see risk to the volume growth, which will still be in double digits and this volume growth will still be a secular trend for the next few years. But there will be margin pressure, because we have a situation where oil prices are high, interest rates are heading up and steel is going up. That will have an inflationary impact there and it is going to be difficult for auto manufacturers to pass on this cost to the consumers because of competition. So there will be volume growth, but that may not be good enough to take care of margin pressures. This may manifest one or two quarters down the line, but not in this quarter.
Q: Do you generally stay underweight on interest rate sensitive sectors?
A: Surely, it is going to be the banking pack, which is going to see an increase in their cost of borrowings and the increased provisioning, which they will have to do post the new Credit Policy. That is where the sweet spot may no longer remain.
Apart from that, whether it is demand for real estate, consumer durables or actual demand for automobiles, I really don’t see a material impact on those sectors because of a 25, or 50 bps hike in the lending rates.

Source :