Markets are Undervalued at this Stage on Fundamental Basis
Talking about market trends and Sensex for the year 2016, Mr. Srivatsa senses the earnings for this quarter has been impacted by the huge losses because of PSUs on account of higher recognition of stressed assets as per directives of RBI and since the base of these banks are huge , this has had an impact on the growth of profits.
However, on historical basis, these global risks off rally do not last long any stabilization of Chinese economy or more QE by Japan or ECB can see risk off rally fading off and start of risk on rally. The markets are undervalued at this stage on fundamental basis and present a very good opportunity to generate good returns from long term basis.
PSUs banking space have seen their PSU banks have seen their credit costs rising very sharply in the last few quarters as the stress in the system has continued and the exposure to the high leveraged groups are on the higher side. Apart from this factor, there are pressures on the NIM front and most of the mid PSU banks have not able to increase their CASA or retail assets base which would impart stability to the operations.
The problems with the top Pharma companies for the last one year for US FDA warning letter is 12-24 months and hence in the next two to three quarters, these issues will be getting resolved. The US generics market is a large market and Indian companies have established themselves as a credible player in the market. Also, Oil marketing co's has benefited from the sharp fall in the crude and most of the gains from the crude are captured in the prices.
Metal shares have witnessed a sharp sell-off in recent times in tandem with weak global commodity prices. On a fundamental basis, some of the mid cap stocks have corrected in the last one month and are looking attractive. We would focus on mid cap banks , NBFC , textile and logistics companies as these represent good growth opportunities and valuations have become very reasonable.
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