In an interview with ET Now, Avinnash Gorakssakar, Founder Director, Moneyinvestments.in, shares his views on the likely impact of the weak monsoon on the Indian markets. Excerpts:
ET Now: What is worrying the markets right now are the comments from the Meteorological Department saying that the seasonal deficiency as of July 17th is 21% for the country. What is your view on the impact of the monsoon on the Indian markets?
Avinnash Gorakssakar: If the monsoon does not progress in the coming couple of weeks, we would definitely be seeing the impact of this on food prices. Food inflation has already moved up over the last two weeks, and if the monsoon momentum does not pick up, the market will be worried about the food inflation going up even further. Also, I do not think the markets were amused by a marginal cut in the overall inflation number for June. So, these factors would possibly keep the upside for the markets capped in the very near term. Already the markets are seeing a very ranged movement. And if the monsoon fails, it will obviously put more pressure on the government to push the reform button, which has clearly been missing till now.
ET Now: So based on what you said -- a flattish market --how would you play the current environment?
Avinnash Gorakssakar: In this market, it would be better to play on the defensives. Clearly pharma, FMCG and some sort of power utilities, like an REC or a PFC. In this kind of scenario, a rate cut does not look to be possible, and if the Presidential election throws up some negative surprise, that could possibly put a knee-jerk correction to the market. As of now, everybody is hoping that Pranab Mukherjee will win, but this is a secret ballot. If things go the other way round, it could act as a big negative surprise for the markets.
ET Now: Speaking of pharma, you have got most of the counters which are doing very well today... the likes of Biocon, Glenmark, Dr. Reddy’s, Sun Pharma and Ranbaxy. Which would be your preferred bets within the pharma pack?
Avinnash Gorakssakar: I would put my bets on Cipla and Glenmark. Cipla should benefit quite significantly -- not only in this quarter, but even for the next financial year -- as their Indore SEZ has started up operation and things look good on the export side as well. Cipla, probably in a year’s time, could be trading at around 370-380. In the case of Glenmark, although the price has moved up a bit, with the kind of decline in their upfront payment, one can definitely buy onto Glenmark.
ET Now: How would you be viewing the banking pack, because the numbers we have had so far have been fairly good? We do not know what the PSU bank pack is going to throw up. So as we stand today, how would you play banks?
Avinnash Gorakssakar: My bets would be more of the private banking space, such as Yes Bank, Axis Bank and ICICI Bank. Their NIMs are definitely well maintained and the CASA ratios are also pretty good. At this stage, I would say that any kind of correction in the banking space would be a good opportunity to buy in. Even though the macro numbers do not look good, I feel that both the IIP and the inflation data will actually moderate... and that would be a good time to go in because we would also be seeing the benefit of rate cuts coming in.
ET Now: What would be your sense on the infrastructure pack, because while things have been fairly slow on the policy initiative, it has been very volatile for some of these counters?
Avinnash Gorakssakar: On the infrastructure space, we would be seeing a weak set of numbers -- at least for another quarter or so. Except for companies like Larsen & Toubro, I am not very comfortable about other names in this space, like a GVK Power or GVK Infra and Lanco Infratech. Margin pressures would probably continue because the kind of debt on these balance sheets is still pretty large, and without a rate cut happening in the very shorter term, most of these companies are going to see interest cost go up further. So till the second half of the financial year, you might see some good positive traction, but I believe these stocks would be range-bound -- at least till September.
ET Now: The infrastructure pack’s problems have been well documented. We have spoken about the challenges that they face for several months now, but given the hope that has emerged of seeing some sort of policy movement, would you say that now may be a great time to start buying into some of the better-run infrastructure companies?
Avinnash Gorakssakar: Someone with a medium to longer-term horizon can buy into these stocks; but in the shorter term, if the government presses the reform button, you will see a selling pressure coming off here as earnings are still under pressure and margins continue to be down. So if somebody wants to take a really longer-term call, one could probably wait and I feel that you could probably see a better value coming off in a week or so.
ET Now: Do you think now would be a good time to nibble into mid-cap stocks?
Avinnash Gorakssakar: For a slightly aggressive investor -- somebody who does not want to track the market and wants to take a stock specific call -- there are definitely good stocks available at good valuations. So if the stock call is right and if the midcap has got a decent management, a good business model, clearly one can take the risk and put money on select mid-caps. That being said, one should definitely take into consideration the fact that the markets are going to be range-bound for a while.
ET Now: What is worrying the markets right now are the comments from the Meteorological Department saying that the seasonal deficiency as of July 17th is 21% for the country. What is your view on the impact of the monsoon on the Indian markets?
Avinnash Gorakssakar: If the monsoon does not progress in the coming couple of weeks, we would definitely be seeing the impact of this on food prices. Food inflation has already moved up over the last two weeks, and if the monsoon momentum does not pick up, the market will be worried about the food inflation going up even further. Also, I do not think the markets were amused by a marginal cut in the overall inflation number for June. So, these factors would possibly keep the upside for the markets capped in the very near term. Already the markets are seeing a very ranged movement. And if the monsoon fails, it will obviously put more pressure on the government to push the reform button, which has clearly been missing till now.
ET Now: So based on what you said -- a flattish market --how would you play the current environment?
Avinnash Gorakssakar: In this market, it would be better to play on the defensives. Clearly pharma, FMCG and some sort of power utilities, like an REC or a PFC. In this kind of scenario, a rate cut does not look to be possible, and if the Presidential election throws up some negative surprise, that could possibly put a knee-jerk correction to the market. As of now, everybody is hoping that Pranab Mukherjee will win, but this is a secret ballot. If things go the other way round, it could act as a big negative surprise for the markets.
ET Now: Speaking of pharma, you have got most of the counters which are doing very well today... the likes of Biocon, Glenmark, Dr. Reddy’s, Sun Pharma and Ranbaxy. Which would be your preferred bets within the pharma pack?
Avinnash Gorakssakar: I would put my bets on Cipla and Glenmark. Cipla should benefit quite significantly -- not only in this quarter, but even for the next financial year -- as their Indore SEZ has started up operation and things look good on the export side as well. Cipla, probably in a year’s time, could be trading at around 370-380. In the case of Glenmark, although the price has moved up a bit, with the kind of decline in their upfront payment, one can definitely buy onto Glenmark.
ET Now: How would you be viewing the banking pack, because the numbers we have had so far have been fairly good? We do not know what the PSU bank pack is going to throw up. So as we stand today, how would you play banks?
Avinnash Gorakssakar: My bets would be more of the private banking space, such as Yes Bank, Axis Bank and ICICI Bank. Their NIMs are definitely well maintained and the CASA ratios are also pretty good. At this stage, I would say that any kind of correction in the banking space would be a good opportunity to buy in. Even though the macro numbers do not look good, I feel that both the IIP and the inflation data will actually moderate... and that would be a good time to go in because we would also be seeing the benefit of rate cuts coming in.
ET Now: What would be your sense on the infrastructure pack, because while things have been fairly slow on the policy initiative, it has been very volatile for some of these counters?
Avinnash Gorakssakar: On the infrastructure space, we would be seeing a weak set of numbers -- at least for another quarter or so. Except for companies like Larsen & Toubro, I am not very comfortable about other names in this space, like a GVK Power or GVK Infra and Lanco Infratech. Margin pressures would probably continue because the kind of debt on these balance sheets is still pretty large, and without a rate cut happening in the very shorter term, most of these companies are going to see interest cost go up further. So till the second half of the financial year, you might see some good positive traction, but I believe these stocks would be range-bound -- at least till September.
ET Now: The infrastructure pack’s problems have been well documented. We have spoken about the challenges that they face for several months now, but given the hope that has emerged of seeing some sort of policy movement, would you say that now may be a great time to start buying into some of the better-run infrastructure companies?
Avinnash Gorakssakar: Someone with a medium to longer-term horizon can buy into these stocks; but in the shorter term, if the government presses the reform button, you will see a selling pressure coming off here as earnings are still under pressure and margins continue to be down. So if somebody wants to take a really longer-term call, one could probably wait and I feel that you could probably see a better value coming off in a week or so.
ET Now: Do you think now would be a good time to nibble into mid-cap stocks?
Avinnash Gorakssakar: For a slightly aggressive investor -- somebody who does not want to track the market and wants to take a stock specific call -- there are definitely good stocks available at good valuations. So if the stock call is right and if the midcap has got a decent management, a good business model, clearly one can take the risk and put money on select mid-caps. That being said, one should definitely take into consideration the fact that the markets are going to be range-bound for a while.
