Give us a sense of what you are expecting the market to be like today, which sectors are expected to tip once again back into the green given that we have ended in the red across all sectors yesterday. Sharp cuts coming in across realty, FMCG, IT, auto, some heavy weights and defensives that were under pressure. Do you see them edging towards the green today given that they have consolidated significantly yesterday?
Digant Haria: I do not think I have a day-to-day view on all of these things. See, Japan and US are two economies which are laden with debt and they will keep on pestering the world markets time and again till at least September.
So, you will get these bouts of volatility, but the overall setup for India is pretty clear that India and maybe a lot of other emerging markets that crude oil is down, commodities are down, US dollar is no more strong, the DXY is weakening.
So, this is a setup where we should do well. The numbers have not been too bad. So, we will again see a market where there will be rotation like the financials could make a comeback. The financial sector in India could make a comeback, the industrial and the PSU sector which has been down and out for the last six months that could make some comeback.
So, the setup overall is decent, something where we do not make lifetime highs, but we do not fall either and that sector rotation should happen.
The point you just highlighted, I wanted to get a more sense on this one because for Japan long-term bond auctions that has actually got the weakest demand since 2012. Do you believe that the next signal for the markets will come from the bond markets and how crucial it is to watch for the bond movement, especially for the Japanese bond auctions and the prices that we go ahead because for now Japan has been one of those spots which actually offered the lowest interest or rather the kind of the lowest, the safest of the heavens for investors. So, do you believe that it could have some implications on the FII number for emerging market as well?
Digant Haria: See, US and Japan these are the two economies which have a lot of debt which comes for refinancing and see the world has had enough of these two economies binging on debt.
Trump is already trying to do its bit by de-addicting the American economy from debt. But they still have to do all the refinancing. So, similarly, for Japan and then if you look at US the rates have increased from say 1% to almost 5% in the last two years. Japan was probably around zero percent, now we are getting close to three. So, Japan is also adjusting to those realities of a debt laden economy. We will see some more shocks from US bond markets as well as from Japan over the next six months, but world is ready to move on because we have already seen one or two shocks in the last six months. Countries like China, a lot of them are banking on gold, so we saw a very good rally in gold. So, this is a move away from that old world order of US dollar and Japanese yen dominating everything, but see, they have been the very strong currencies and the bellwether of world market. So, whenever there is something wrong which happens there, we will correct for a day or two, but I do not see that we go back to those March lows or anything because we are doing well, a lot of other emerging markets are doing well and they are probably like just saying hey, you guys manage your problems, yes, these are not our problems, so at least that is what we think.
Pretty much at the fag end of the earning season. What has been your analysis and read through from earnings so far and where is it that you have your sector overweights and underweights?
Digant Haria: So, see, the earnings were quite robust versus the expectations because if you remember like from October to March we had a continuous round of correction and the talk then was that capex is slowing down, consumer there is absolutely no revival.
So, the earnings expectation were quite muted and versus that earnings expectation we have done quite well especially when it comes to sectors like industrials and PSU and capex and even some pockets of the consumer sector, not the large FMCG ones but something like a Whirlpool, a lot of them give decent set of numbers, the cement stocks.
So, there is not much to complain on the numbers. Again, it is very standard response that we have to be stock specific and choose our battles because it is not going to be an all-out bull market, but it will be a reasonably stock specific, sector specific bull market.
And something like financials, the results were absolutely lacklustre, but that was expected, Q4 was going to be a reasonably bad quarter for all the large banks, the mid-sized banks, even a lot of these microfinance and high lending NBFCs, something like a Bajaj Finance, everything was lacklustre, but that was expected. June should be one more quarter of lacklustre performance, but after that you will see three, four, five quarters of really improving performance from the financials. So, maybe the results were not good, but probably this is the quarter where you start building positions in beaten down financials or beaten down consumer names because that is where it looks like we will have the next bull market coming.
So, our read through is that in industrials and capex space if your stocks are delivering good numbers, you continue there, but otherwise you can start building positions in the beaten down financials and beaten down consumer names because those early signs are there that results will improve in the coming three-four quarters.