Shares of multiplex operators PVR Ltd and Inox Leisure Ltd are now down about 1.6% and 3.2%, respectively, after Reliance Industries Ltd’s (RIL’s) annual general meeting. 

The stocks had fallen much more last week, after the oil-to-telecom conglomerate’s bundled entertainment offering including a disruptive concept for watching new movies at home on the same day they are released in theatres.

Why are investors breathing easy? To start with, since RIL hasn’t given many details about its plans, the exact impact is difficult to quantify at the moment. “We do not expect any material impact on overall revenues of PVR as such a segment which subscribes to ‘premium Jio Fiber’ would be relatively small," analysts from Bank of America Merrill Lynch said in a note to clients.

Analysts at HSBC Securities and Capital Markets (India) Pvt. Ltd said to its clients, “We do not think exhibition players such as PVR and Inox Leisure will be affected by Jio’s movie offering as out-of-home entertainment demand cannot be challenged by at-home movie offerings."

As such, considering that RIL is looking to launch the so-called First Day First Show service only in the middle of 2020, from a near-term perspective, the threat from this move seems limited.

Still, the uncertainty of how the situation would evolve may weigh on multiplex stocks.

If JioFiber manages to screen popular movies on the same day as their launch on theatre screens, the impact will not be trivial.

“Reliance JIO’s announcement of ‘First Day First Show’ movie launch is in-line with our long-term thesis that consumers will reduce the visits to a multiplex due to the content being available on OTT," said Spark Capital Advisors (India) Pvt. Ltd’s analysts in a report on 19 August. OTT is over-the-top and refers to internet streaming media services such as Amazon Prime Video and Netflix.

Given more choices at the consumer’s disposal, it will be interesting to watch if at-home movie offerings will take a big bite from the out-of-home entertainment demand. “Theatrical and at-home are two completely different experiences and each has their own places. Both these experiences have co-existed and prospered for decades and will continue to so in future," said PVR in a statement on 13 August.

From a medium- to long-term perspective, there are potential risks, nonetheless. “With content producers deriving ~75% of their revenues from theatrical Box Office collections, we see no immediate impact to PVRL’s footfalls; however, we believe more movie producers will commence embracing the OTT format over the long term as they begin to see a value proposition emerging out of the new modus operandi," added the analysts at Spark Capital.

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Indian equity markets have no friend left either domestic or foreign. Domestic investors are miffed about the tax rules, while foreign investors are worried that the latest move on Article 370 will stoke tensions with neighbouring countries. The ongoing trade war between the US and China is making things worse

On Monday, the Nifty index declined 134.75 points, or 1.23%, in a sea of red that enveloped most emerging markets (EMs). Indian markets have been underperforming the MSCI EM Index so far in 2019 (see chart).

The scrapping of Article 370 notwithstanding, escalating US-China trade tensions have been bogging down markets. “There is no earnings growth. A lack of stimulus and a lack of direction is a dangerous combination," says veteran market expert Ajay Bagga. “After today, we are expecting some reforms as the focus comes back on the economy."

The more pressing problem has been a lack of earnings, as is evident from the disappointing first-quarter results. Barring some consumer goods companies, earnings growth has been poor. Banks, which were supposed to lift earnings, haven’t been able to help.

Besides, markets across geographies are under stress because of the escalating tensions between China and the US, and the slowing growth rate in emerging market economies. “This is leading to derating of the market. We have lowered the Nifty’s earnings by about 7-8% because of an overall slowdown in the economy and corporate earnings," Naveen Kulkarni, head of research at Reliance Securities Ltd, said over the phone.

Analysts at Morgan Stanley India Co. Pvt. Ltd noted that the global trade war will lower international growth. “If the US lifts tariffs on all imports from China to 25% for four-six months and China takes countermeasures, we believe we will enter a recession in 3 quarters," said analysts at the firm in a note to clients.

The trade war has already hit the exchange rate. The rupee breached the 70-mark against the dollar, and there is a real danger that it could slip further. The risk perception of rupee assets has undergone a change every time geopolitical risks associated with the country’s neighbours have resurfaced.

That said, the currency’s biggest problems arose because of the Chinese yuan, which dropped past a key level against the dollar. A weaker Chinese currency could hit the competitiveness of Indian goods in international trade. Analysts believe that if these escalations persist, both in the global markets and the domestic geopolitical space, the rupee could weaken beyond 71 to a dollar.

Indian markets are at the receiving end of a barrage of negative news and a positive counter to tip the scales is crucial. Global developments will weigh on sentiments, but what the market needs is a revival in earnings of companies. Some relief is expected from the Reserve Bank of India in the form of a rate cut on Wednesday. A stimulus from the government would not hurt.

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At close, the Sensex was down 462.80 points at 37,018.32, while Nifty was down 138 points at 10,980

The final hour recovery helped the Nifty to close around 11,000 level and Sensex above 37,000 after remained under immense selling pressure throughout the day.

At close, the Sensex was down 462.80 points at 37,018.32, while Nifty was down 138 points at 10,980. About 830 shares have advanced, 1587 shares declined, and 147 shares are unchanged. 

Vedanta, JSW Steel, Hindalco Industries, SBI and Tata Motors were among major losers on the Nifty, while gainers were Wipro, Bharti Infratel, Maruti Suzuki, Reliance Industries and Power Grid Corp.

Among sectors, except energy all other indices ended on weak note led by the metal (down 3 percent), PSU bank (down 2 percent), IT (down 1.8 percent) followed by infra, pharma and FMCG.

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The rupee has opened at the lowest level since June 27

The Indian rupee slipped in the early trade on Thursday. It has opened lower by 41 paise at 69.20 per dollar versus previous close 68.79.

The rupee has opened at the lowest level since June 27.

On July 31 the rupee has recovered from the lows and finished 6 paise higher at 68.79 against the US dollar ahead of the outcome of US Federal Reserve meeting.

The dollar-rupee August contract on the NSE was at 68.98 in the previous session. Open interest declined 9.84% in the previous session, reported ICICIdirect.

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We believe that for companies with strong growth prospects and sound fundamentals, it would be prudent to accumulate such stocks on dips as any correction in the prices should be used as a buying opportunity.

Siddharth Sedani

Indian benchmark indices continued its losing streak for the sixth consecutive day as Nifty finished below 11,300 level. Overall trading sentiment remains weak in the near term due to taxation issues, dull earnings and slowing consumption.

Also, oil prices have nudged higher on rising tensions over Iran and a sharp fall in US crude stocks, although worries about weak demand will continue to keep a cap on gains. Markets are expected to be volatile in the near term on account of broad events including US Fed policy meeting scheduled on July 30-31, the progression of monsoon, upcoming RBI policy and the results of various companies.

Other important factors such as oil prices, movement of rupee and investment trend by overseas investors would also influence trading in the market. Though slowdown issues could drag the markets in the medium term, it gives an investment opportunity for long term investors who have a horizon of more than 2-3 years.

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There were pending buy orders of 275 shares, with no sellers available.

Shares of McNally Bharat Engineering was locked at 5 percent upper circuit on July 26 as the company won an order worth Rs 8 crore.

The company has received one order from Krishi Bikash Shiipa Kendra for construction of boundary wall with fencing for SOOMW Solar Power Plant in Jharkhand, McNally Bharat said in an exchange release.

The company had recently won an order from SGTORE Company, a Hong Kong-based firm, for designing and engineering, the supply of equipment, two years spare parts, three months consumables on EPS basis worth Rs 46.70 crore.

At 1014 hrs McNally Bharat Engineering was quoting at Rs 2.61, up 4.82 percent on the BSE.

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The company reported a 17 percent year-on-year growth in June quarter profit at Rs 329.1 crore from Rs 281.5 crore in same period last fiscal.

Share price of Canara Bank shed 4 percent intraday on July 25 as research house Morgan Stanley remained underweight on stock with a target of Rs 220 per share.

The company reported weaker PPoP and asset quality in Q1FY20, while company's Q1FY20 PAT is Rs 300 crore against estimate of Rs 600 crore, said Morgan Stanley.

Lower margins and sequential rise in slippages are the key negatives, while higher fees and lower than expected other operating expenses are the key positives.

The company reported a 17 percent year-on-year growth in June quarter profit at Rs 329.1 crore from Rs 281.5 crore in same period last fiscal.

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Thermax | L&T Infotech | Hatsun Agro | Rallis India | Sasken Technologies | Sterlite Technologies and Cyient are stocks which are in the news today.

Here are stocks that are in the news today:

Results on July 19: Reliance Industries, RBL Bank, Dabur India, L&T Finance Holdings, InterGlobe Aviation, Bandhan Bank, L&T Technology Services, ICICI Lombard General Insurance Company, Bhageria Industries, Hindustan Zinc, Dhanuka Agritech, Mahindra CIE Automotive, JM Financial, Phillips Carbon Black, Indbank Merchant Banking Services, Tokyo Plast International

ACC Q2: Profit grows 39.5 percent to Rs 455.7 crore versus Rs 326.7 crore, revenue increases 7.8 percent to Rs 4,149.8 crore versus Rs 3,848.3 crore YoY.

Cyient Q1: Profit falls 48.8 percent to Rs 90.5 crore versus Rs 176.6 crore, revenue dips 6.4 percent to Rs 1,089 crore versus Rs 1,162.9 crore, dollar revenue declines 5.2 percent to $156.6 million versus $165.2 million QoQ.

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The stock has lost nearly 90 percent of its value in the last one year.        

Dewan Housing Finance Corporation (DHFL) shares were locked at 10 percent lower circuit at Rs 61.65 on July 15 after posting a loss for first time since inception and warning about its survival.

There were pending sell orders of 6,49,477 shares, with no buyers available on the BSE at 0920 hours IST. The stock has lost nearly 90 percent of its value in the last one year.

The housing finance company posted a loss of Rs 2,224 crore for the quarter ended March 2019, against a profit of Rs 314 crore in the December quarter and Rs 134 crore in the June quarter of last year.

"In the backdrop of a significant slowdown in disbursement and loan growth after September 2018, the financials of the company have been quite strained for the quarter impacting the overall performance of the year," Kapil Wadhawan, Chairman and Managing Director said in a BSE filing.

Due to the additional provisioning of Rs 3,280 crore (including net loss on fair value), the company reported a net loss of Rs 2,223 crore for the quarter and a net loss of Rs 1,036 crore for the whole year (as against a profit of Rs 1,240 crore in previous year), he added.

The company also warned that its financial situation was so grim that it may not survive.

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Credit Suisse the dispute hasn't had an operational impact so far but can't rule one out

Shares of InterGlobe Aviation, the operator of budget airline IndiGo, fell more than 17 percent intraday on July 10 after differences between two promoters Rahul Bhatia and Rakesh Gangwal reached the market regulator.

Securities and Exchange Board of India (SEBI) on July 9 asked the Board of Directors of InterGlobe Aviation to respond to a letter written by Rakesh Gangwal, which sought regulatory intervention on his alleged grievances. The board has time till July 19 to respond to Gangwal's letter.

The rift between the company's promoters has been making the headlines for a while now.

Rakesh Gangwal Group sent a letter to SEBI alleging lack of compliance with corporate governance norms, global brokerage Credit Suisse said, adding the dispute between Rakesh Gangwal and InterGlobe Enterprises has a potential of lingering and becoming a significant headwind.

The investment firm further said the dispute hasn't had an operational impact so far but can't rule one out.

While reiterating sell call on InterGlobe Aviation, Citi said, "With conflict between promoters getting public, we do not envisage settlement anytime soon. Uncertainty regarding the final resolution could cause weakness in the stock."

In an interview to CNBC-TV18, Vikas Khemani, Founder at Carnelian Capital Advisors LLP also advised investors to stay away from IndiGo until boardroom battle doesn't subside.

Rakesh Gangwal and Shobha Gangwal hold 23.09 percent stake in InterGlobe Aviation. The Chinkerpoo Family Trust (where trustees are Shobha Gangwal & JP Morgan Trust Company of Delaware) hold 13.60 percent stake.

On June 25, in an interview to CNBC-TV18, IndiGo CEO Ronojoy Dutta said the differences between Rahul Bhatia and Rakesh Gangwal were over related party transactions (RPTs).

The differences are specifically connected to the transactions between IndiGo, and other units of InterGlobe Enterprises (IGE), the holding company of Rahul Bhatia's business empire.

The letter by Gangwal, dated July 8, stated that Bhatia has "unusual rights" over IndiGo due to the shareholders’ agreement between them. These controlling rights give IGE Group, a minority shareholder, significant influence over the decisions of IndiGo.

“I hadn't contemplated that over the years. Bhatia would start building an ecosystem of other companies that would enter into dozens of related party transactions with IndiGo. We are not against RPTs as long as proper checks and balances exist and such RPTs are in the best interest of the company,” stated the letter.

Gangwal, in his letter, provided some alleged events, which he felt was “collapsing corporate governance standards at IndiGo.”

In a letter written by Bhatia on June 12, he said Gangwal's ego was hurt as the company proceeded to make alternate arrangements for original equipment manufacturers (OEMs).

He also alleged that the Rahul Gangwal group wanted to relieve itself from its obligations under the shareholders' agreement and articles of association (AoA) as Gangwal is scared of liability in a highly regulated sector and that the real agenda of RG group is to dilute, diminish controlling rights of IGE group.

Bhatia also alleged that Gangwal did not raise any objections for 13 years against any RPTs, and had also happily agreed to fundamental proposition that IGE group will have control, as Gangwal did not mind that IGE group was taking the entire economic risk, and that year after year, he signed and approved the annual account statements without raising any objections.

IndiGo itself is under the umbrella of InterGlobe Aviation, one of the units of InterGlobe Enterprises. Apart from aviation, the Group also has interests in hospitality, airline management, travel commerce, advanced pilot training, aircraft maintenance engineering and real estate.

The stock was quoting at Rs 1,362.85, down Rs 202.90, or 12.96 percent on the BSE at 0942 hours IST.

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The capital infusion will help some banks to come out of the central bank's prompt corrective action and resume lending and clean up their balance sheets, she added.

The proposed Rs 70,000-crore capital infusion into public sector banks (PSBs) will provide a timely booster to these lenders, S&P Global Ratings has said.

 The move, announced in the Budget, is likely to be credit positive for the banking sector and the economy, S&P said in a note titled 'India's Budget attempts to address trust deficit in the financial sector.

"We believe the capital infusion will help PSBs make necessary haircuts on their weak corporate loans and shore up their capital adequacy," said S&P Global rating credit analyst Geeta Chugh.

The capital infusion will help some banks to come out of the central bank's prompt corrective action and resume lending and clean up their balance sheets, she added.

S&P said it believe PSBs still require substantial reforms to improve risk management, service quality, efficiency, and diversity of product offerings.

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HDFC Bank Limited is our top pick amongst the private sector banks. We re-initiate our coverage on HDFC Bank Limited with a BUY rating and target price of Rs 2820 per share.

Anand Rathi

HDFC Bank is largely a retail bank and earns majority of its revenues and income from the same. Retail and corporate constitute 54 percent and 46 percent respectively to its loan mix as on March 31, 2019.

The company’s advances has registered a CAGR of 22 percent in the last four years. The NII of the company has registered a CAGR of 21 percent in the last four years.

With several process changes, the bank is looking at a massive increase in the number of accounts opened per branch per day from 1.8 to 3 over the next 18 months. This will drive healthy growth in liabilities and offer higher cross-selling opportunities.

Capital constraints in public sector banks will provide an opportunity for the private sector banks to increase their market share and outperform in banking & financial services space.

Further, we expect HDFC Bank to be a major gainer of the current crisis in the NBFC space as it has best-in-class liability franchises along with superior customer outreach across business segments.

Backed by the robust underwriting skills & prudence and the consistent track record of growth and profitability, HDFC Bank Limited is our top pick amongst the private sector banks. We re-initiate our coverage on HDFC Bank Limited with a BUY rating and target price of Rs 2820 per share.

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To achieve growth in the economy, it is imperative to support the financial services sector.

Hemal Mehta, Dipesh Jain and Dilip Sutar

The expectation from the Union Budget was to focus on strengthening the financial services sector, which is the backbone of India's economic growth. Finance Minister Nirmala Sitharaman announced multiple policies to fuel liquidity in the industry and prioritise infrastructure, education, disinvestment, Naari Shakti and youth energy, among others.

To achieve growth in the economy, it is imperative to support the financial services sector and in this connection, the following measures have been proposed:

1. Relaxation of FDI norms for the aviation, media (animation, visual, gaming and comics) and insurance sectors.

2. 100 percent FDI in insurance intermediaries.

3. Allowing investments in NBFC debt instruments by foreign investors (FPI/FIIs).

4. Government to provide additional capital of Rs 70,000 crore to public sector banks.

5. “Social stock exchange” proposed to be set-up for listing social enterprises and voluntary organisations.

From a tax perspective, there are certain amendments proposed to be introduced that would be welcomed by the industry, such as passthrough of losses (other than business losses) to the unitholders of Categories I and II Alternative Investment Fund (AIF), extending exemption to investment by Category II AIF from the deeming taxation related to issue of shares at a value higher than fair market value.

The Finance Minister has also been forthcoming in introducing various incentives to International Financial Service Centre (IFSC) in terms of bringing in tax-neutral transfers held by Category III AIFs, exempting interest income, extending the deduction to 10 years, etc. The Budget also provides beneficial tax treatments to start-ups.

With a view to providing a level playing field to certain categories of NBFCs vis-a-vis banking companies, it is proposed that certain NBFCs can offer the interest income on NPAs on receipt basis. Deduction of such interest will be on payment basis. Conversion of unpaid interest into a loan is not allowed as deductible expenditure.

To achieve less-cash economy, banks and post offices are obligated to withhold tax on withdrawal beyond Rs 1 crore.

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The top gainers from the NSE include IndusInd Bank, Indiabulls Housing Finance, Bharti Infratel, Kotak Mahindra Bank and Bharti Airtel while the top losers are YES Bank, NTPC, Vedanta, TCS and Hindalco Industries.

Following the maiden Budget speech by new Finance Minister Nirmala Sitharaman, the Indian benchmark indices are at the low point of the day with Nifty down 85 points at 11,861 level while the Sensex plunged 255 points and is trading at 39,652 level.

Nifty Metal is down over 2 percent dragged by Hindalco Industries, Coal India, Jindal Steel and Power, SAIL and Vedanta which are down over 3 percent each followed by Tata Steel and NMDC.

Oil & gas are down after imposition of special additional excise duty on petrol & diesel. In the Union Budget 2019-2020, the government has proposed to put special additional excise duty of Re 1 per litre and road cess of Re 1 per litre on petrol and diesel.

The top losers are ONGC, BPCL, Indian Oil Corporation and Reliance Industries.

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The top gainers from the NSE include UPL, ONGC, Coal India, BPCL and Bharti Airtel while the top losers are YES Bank Sun Pharma, Tata Motors, Bajaj Auto and ICICI Bank.

The Indian benchmark indices are trading on a negative note with Nifty down 26 points at 11,838 while the Sensex shed 117 points and is trading at 39,569 level.

Nifty Realty is down over 1.5 percent dragged by Godrej Properties which is down 10 percent followed by Indiabulls Real Estate, Unitech, Sunteck Realty and Sobha.

From the pharma space, the top losers are Sun Pharma which is down over 2 percent followed by Lupin, Cadila Healthcare and Aurobindo Pharma.

The top losers from the banking space are YES Bank which is down over 5 percent followed by ICICI Bank, IDFC First Bank and HDFC Bank.

Nifty Energy is however up half a percent led by ONGC, BPCL, HPCL and Indian Oil Corporation.

India VIX is up 0.07 percent and is trading at 14.61 levels.

The top gainers from the NSE include UPL, ONGC, Coal India, BPCL and Bharti Airtel while the top losers are YES Bank Sun Pharma, Tata Motors, Bajaj Auto and ICICI Bank.

The most active stocks are YES Bank, Adani Power, Idea Cellular, Reliance Infra and Dish TV.

Adani Power, TD Power Systems, SBI Life Insurance, Trent and CESC have hit a new 52-week high on BSE.

On the other hand, 135 stocks have hit a 52-week low on BSE including Ortel Communications, Healthcare Global, Quest Corp, McNally Bharat, Tilaknagar Industries, TVS Motor, Sun Pharma Advanced Research Company and Graphite India among others.

639 stocks advanced and 1016 declined while 420 remained unchanged on the NSE. On the BSE, 867 stocks advanced, 1193 declined and 118 remained unchanged.

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Credit Suisse has maintained underperform call on the stock with a target price at Rs 115 per share, implying 5 percent potential downside from the current level.

Bank of Baroda shares gained 3 percent intraday on June 28 despite global brokerage Credit Suisse maintaining its bearish call on the stock.

"We maintain underperform call on the stock with a target price at Rs 115 per share, implying 5 percent potential downside from current levels," the research firm said.

The brokerage further said growth for the merged entity has continued to weaken and it expects growth to remain tepid.

Vijaya Bank and Dena Bank amalgamated with Bank of Baroda w.e. f. April 1, 2019. "The Board of Directors on June 27 approved opening balance sheet of the amalgamated bank," the bank said.

Credit Suisse said post-merger balance sheet reveals Rs 6,000 crore hit taken to harmonise acting policies. "CET1 is now at 8.6 percent versus 10.4 percent reported by bank in Q4. It implies the acquisition cost of 1.1x FY19 P/B for Dena & 0.8x for Vijaya Bank."

The brokerage further said coverage to IL&FS exposure remains low at 25 percent, but exposure to ADAG, DHFL & NBFCs will keep slippages & credit costs elevated. "We expect a return on equity to remain in single digits even in FY21."

The stock rallied 7 percent in last one year. It was quoting at Rs 122.85, up 1.19 percent on the BSE, at 1448 hours.

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The benchmark indices, BSE Sensex and Nifty50 rallied 9 percent each in the first half of this calendar year.

Indian stock market remained highly volatile in the first half of the current calendar year because of some major domestic and global event including election, earnings, global trade war, MPC meet, NBFC crisis, weak auto sales number, etc.

After hitting their highs on the election result day, the Sensex and Nifty continued their upward momentum and hit 40,312.07 and 12,103.05, respectively, on June 3.

Most brokerage firms have raised their target price for both Sensex and Nifty on a 1-year basis, but in the near term, expect the upside to remain capped. For FY20, the brokerage firms expect the Nifty EPS to grow around 26 percent to Rs 604.

The benchmark indices, Sensex and Nifty rallied 9 percent each in the first half of this calendar year. Nifty Media was the biggest loser in the period with a fall of 19 percent, while on the other hand, Nifty Realty gained 18 percent.

Indian indices got a major boost from the exit polls and results of the general elections. After the exit polls, the Nifty rallied 3.7 percent giving a clear mandate to the BJP government.

BJP won 303 of the 543 seats on its own and that brought an end to political uncertainty and instilled confidence among investors on continuity of reforms.

After rallying about 10 percent so far in the year 2019, most experts feel benchmark indices might take a breather till the full budget, which will be presented on July 5.

Umesh Mehta, Head of Research, SAMCO Securities said that there is a high probability that markets could make a top and then tread in a range till the Budget as Nifty is trading at extremely high valuations with upwards of 29x PE on the higher end of the band.

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Most of the companies have high debt and are facing structural issues, hence, investors should avoid catching the falling knife even at current levels, suggest experts.

On June 28, 34 stocks will no longer be part of futures and options (F&O) segment on the NSE. The exchange, in a notification in April, had said that it would not issue F&O contracts for these stocks once June series expires.

These stocks include Reliance Power, Jet Airways, Jain Irrigation, PC Jeweller, IRB Infrastructure, CG Power, CEAT, Ajanta Pharma, IDFC, Kaveri Seed Company, South Indian Bank and Godrej Industries, among others.

Since their exit from the F&O segment was notified, i.e. April 22, only seven of these 34 stocks have delivered positive returns. Year-to-date, just four of these stocks have given a positive return.

Though NSE's decision may not have been a cause of their journey in the red, these stocks certainly extended their losses after the notification was released.

Timely action would have saved investors from any incremental losses seen in almost 90 percent of these stock.

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The share touched its 52-week high Rs 798.80 and 52-week low Rs 475 on 27 August 2018 and 19 June 2019, respectively.

Shares of Eris Lifesciences gained more than 5 percent in the early trade on June 25 as company board is going to consider buyback of shares.

The board of directors will consider a proposal of buyback of the fully paid-up equity shares of the company of face value of Re 1 each at its meeting scheduled to be held on July 3, 2019.

The trading window of the company shall remain closed from June 25, 2019, to July 5, 2019 (Both Days Inclusive).

At 09:25 hrs Eris Lifesciences was quoting at Rs 525.30, up to Rs 13, or 2.54 percent on the BSE.

The share touched its 52-week high Rs 798.80 and 52-week low Rs 475 on 27 August 2018 and 19 June 2019, respectively.

Currently, it is trading 34.24 percent below its 52-week high and 10.59 percent above its 52-week low.

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Considering where we are today in terms of the NPA cycle and the kind of provisioning coverage ratio most of the lenders have, we will witness decent double-digit growth in profits in FY20

Now interest rate has fallen again and liquidity woes have seen minor easing but we remain selective in this space owing to capital constraints that many of the NBFCs are facing. Retail-focused NBFCs with solid parentage and strong capital adequacy are attractive, said Shailendra Kumar, Chief Investment Officer, Narnolia Financial Advisors in an exclusive interview to Moneycontrol's Sunil Shankar Matkar.

Edited excerpts:

Q: As NBFCs are facing liquidity constraints and putting pressure on economic growth, do you think the worst is ending soon for NBFCs? 

A: Every economic and market cycle creates excesses and when the cycle reverses, investors face extreme events risk. During 2013-17, we saw continued optimism from NBFC pack, loan growth was strong on account of space vacated by public sector banks and at the same time falling bond yields gave NBFCs opportunity to shift their funding away from high-cost bank borrowings to low-cost market borrowings.

This virtuous cycle of rising loan growth and rising spread made NBFC stocks a preferred bet. But the cycle also created asset-liability mismatch as market borrowings were of shorter tenure while lending done by NBFCs were of higher duration.

And once interest rate started rising from the middle of 2017 that virtuous cycle ended, the ensuing down cycle has got further exaggerated by issues with infra financing books and also the liquidity tightness from the middle of 2018.

Now interest rate has fallen again and liquidity woes have seen minor easing but we remain selective in this space owing to capital constraints that many of the NBFCs are facing. Retail-focused NBFCs with solid parentage and strong capital adequacy are attractive.

Q: Currently, the slowdown in the consumer segment is clearly visible. Do you think the government will take strong measures to revive consumption growth?

A: The sharp slowdown in the economy requires strong fiscal measures along with the accommodative monetary policy. The forthcoming Union Budget along with simplifying tax provisions should give strong investment push and show a roadmap for factor reforms whether land or labour.

Once the investment momentum comes back in the economy, it would create buoyancy in the industrial activities that, in turn, will create prosperous India and higher consumption. Direct measure to boost consumption would be inflationary.

Q: Do you think Nifty is losing steam and breaking 11,000 in near future?

A: The stock market currently is in a highly indecisive mode. Even a stupendous election outcome could not trigger a new trend in the market. Market structure is surely deteriorating at the moment but this could be short-lived if we get strong fiscal initiatives to reinvigorate investment momentum in the economy and in that sense the forthcoming Budget is very important.

The Budget would influence the trajectory of Nifty for the remaining part of the calendar year. Right now, the market is trading at a one year forward PE multiple of 19.5 times and for the last 3-4 years, Nifty has oscillated in the range of 18-22.5 times one year forward earnings.

Q: Do you still subscribe to the opinion that this year will of small and midcaps despite all headwinds?

A: The last one year of underperformance of mid and smallcap stocks has brought their valuation in line with those of the largecaps. What is favouring largecaps right now is basically the nature of the fund flows into the market. Large domestic inflows that we are receiving today from MF SIPs, NPS and insurance are mostly towards largecap stocks.

Going forward, easing of system liquidity and falling interest rate will help generate buying interest in mid and small-cap stocks. But due to narrowing valuation differential, the stock performance that was a function of cap categories in the last few years, going forward would be cap agonistic.

Q: Most experts feel infrastructure will get a big boost during Modi's second term and will be the next good sector to invest after banks. What is your reading?

A: My own take is that banks would continue to lead the market rallies in the near future. Infrastructure should join the party, particularly as valuation favours the stocks in this sector. Infra companies that are part of the value chain in oil & gas capex, railways, and water should get strong order book boost going forward.

Q: Given ECB stimulus and likely US rate cut, do you expect more FII inflow in emerging markets including India in coming quarters?

A: US rate cut and ECB stimulus are surely positive for emerging market equities. In fact, FII outflows from markets like India in CY2018 was more a function of rising interest rate in the US and less a function of unattractiveness of emerging markets. But going forward, if Indian economic growth improves we may see long-term India specific fund flows coming back.

Q: Considering debt defaults, new NCLT cases and consumption slowdown, do you still expect double-digit earnings growth in FY20? 

A: Nifty earnings have grown by a mere 7 percent CAGR in the last seven years, though sales growth has been in decent double digits. A large part of this single digit growth in profit was due to NPA related provisioning issue that financial sectors companies were facing.

Considering where we are today in terms of the NPA cycle and the kind of provisioning coverage ratio most of the lenders have, we will witness decent double-digit growth in profits in FY20.

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