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    NPA cycle has very clearly bottomed out: Rupesh Patel, Tata Asset Management

    Synopsis

    Excluding the banking system, earnings growth likely to be in high single digit in FY20.

    Rupesh Patel-Tata AMC-1200
    Going ahead, we should see economic recovery gaining traction and earnings recovery also becoming broader and that is why we continue to maintain positive views on the market from a three to five-year point of view, says Rupesh Patel, Fund Manager, Tata Asset Management. Excerpts from an interview with ETNow.

    How are you analysing the earnings quality so far, especially from the consumer side? Was Colgate a one off where street estimates were low but they surprised? Is the street in general expecting weak numbers from consumer space?
    Yes, that is right. We are in the very early stages of the earnings season but what we see till this point is that the numbers are more or less in line with the expectations, particularly on consumers. The expectation is that with rural growth slowing down and the gap between urban and rural growth starting to converge to some extent, some pressure is expected on volume growth.

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    At the same time, we may see some kind of support in margins coming from crude oil prices correction but nonetheless, on an overall basis, because of weakening volume growth. the numbers are expected to be muted.

    Where do you stand right now on the earnings front? The consensus is that earnings will start improving in the second half of the year. Do you agree?
    If we look at it on reported basis, the expectation is that we will have a healthy earnings growth in FY20 but a large part of this earnings growth is coming on account of normalisation of credit cost in the banking system. If you exclude the banking system, earnings growth is expected to be in high single digit only.

    The SIP data sustaining at over Rs 8,000 crore a month is very encouraging. It clearly shows that the flows, at least SIP flows, are healthy. How have the flows been for Tata Mutual Fund? Where have you been positioning in terms of sectors?
    The flows are on the positive side and I would say that investors have shown great maturity. Despite not having too great returns in the last one, one and a half years, investors are still more or less continuing with their SIP investments.

    In terms of allocation as I believe that India’s credit cycle, the NPA cycle has very clearly bottomed out. In case of banks which have suffered on account of the NPA problems in the last few years, incrementally are showing that slippages have come down very meaningfully. At the same time, most of the banks have a healthy provisioning cover on the NPAs which are already there.

    Looking at this, I believe going ahead, credit costs are going to go down very meaningfully and hence and we are very significantly overweight on corporate facing banks.

    Second, on the consumer part. No doubt, there is a slowdown in consumption particularly in the discretionary side like auto. But we may all see a very significant disruption. If we take a step back and look at the bigger picture, then there are multiple categories where earnings growth is expected to remain healthy because from a longer term perspective, that story on consumption is pretty much intact.

    We are a country where more than half of our population is below 25 years of age. The per capita incomes have just touched $2,000 and with increasing trend of urbanisation, these are some of the longer term structural trends which will keep consumption trends positive.

    So, on consumption, from a longer term perspective we are positive keeping in mind valuations as well as the near term headwinds to growth. We are more focussed on stock picking rather than taking a very top down view on consumption.

    Stock picking from which universe? What is your view on the broader market where the valuations have come down to multiyear lows? Is this a great time to start SIPs and can reasonable returns be made over 3-5-year period in the smallcaps and midcaps?
    The market moves have become very concentrated now. It is being driven by a few stocks and as a result, we have seen that the divergence between the broader market, particularly the small and midcap segment and largecap has increased significantly.

    No doubt, near term, it appears there are no positive triggers and markets may remain flat or range-bound or volatile depending on the global news flows as well but if we are willing to remain invested, then as the economic recovery gains traction, more and more sectors participate and we see a more broad-based recovery in earnings growth.

    My view on the market is that from a very near term perspective. we may not be seeing any positive trigger but some of the steps which the government has taken in terms of focussing on bringing down the cost of capital, reviving the investment cycle and keeping the government sector capex intact are steps in the right direction.

    Going ahead, we should see economic recovery gaining traction and earnings recovery also becoming broader and that is why we continue to maintain positive views on the market from a three to five-year point of view.



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    (What's moving Sensex and Nifty Track latest market news, stock tips and expert advice, on ETMarkets. Also, ETMarkets.com is now on Telegram. For fastest news alerts on financial markets, investment strategies and stocks alerts, subscribe to our Telegram feeds .)

    Download The Economic Times News App to get Daily Market Updates & Live Business News.

    Subscribe to The Economic Times Prime and read the Economic Times ePaper Online.and Sensex Today.

    Top Trending Stocks: SBI Share Price, Axis Bank Share Price, HDFC Bank Share Price, Infosys Share Price, Wipro Share Price, NTPC Share Price

    ...more
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