Two-wheeler Segment & Cement Are Expected To Witness Healthy Traction: B Gopkumar, Reliance Securities

Broadly speaking, the domestic equity markets seem to be in a consolidation mode since the start of 2018. Do you foresee a near-term breakout or breakdown taking place from the narrow 1,000-point band that the NIFTY is currently stuck in?
The cocktail of headwinds in terms of global trade war, inflationary pressure, monetary tightening, soaring oil, political concerns and weakening INR is taking a toll on Indian equities since the beginning of 2018. While broader indices appear to be consolidating, there has been substantial value erosion. Total market capitalization (on aggregated basis) has already lost around Rs 7.8 trillion in last two months mainly led by rout seen in midcap and small cap spaces. While corporate earnings are expected to be a key decisive factor for market movement, concerns pertaining to political uncertainty, elevated oil prices and widening twin deficits are expected to keep markets range bound with 3-5% movement in near to medium term.
 
Do you see earnings growth picking up over the coming quarters? If yes - what's your prediction in terms of the quantum of growth?
If we go by our channel checks and management commentaries in 4QFY18, earning improvement appears to be strong in coming quarters. There has been a visible recovery in rural economy, which is expected to get a further boost with recent increase in minimum support price (MSP) by the government. Further, there has been a sustained pickup in infrastructure development across the country. We believe corporate earnings to improve. In the next 2-3 quarters, barring public sector banks (PSBs) we see corporate earnings to be in the of 18-20%.
 
There's been a spate of Pharma Sector focused mutual fund offers recently. Do you think the worst is behind us when it comes to the Pharma sector?
Pharma space has been underperforming the markets for last couple of years. Recent USFDA clearances to Dr Reddy's Srikakulam and Sun Pharma's Halol plants created positive atmosphere for Pharma sector. Now, we believe Pharma sector is better placed owing to; a) visible ease in regulatory hurdles, b) reducing magnitude of price fall in USA markets, and c) strong products pipeline for several companies.
 
Concerns still abound in the banking space in terms of asset quality and (more recently) governance issues. What's your take on the banking sector as a whole? Are you more inclined towards private or PSU banks at these levels?
Asset quality concerns are elevated for PSU Banks, which will keep putting pressure on capital requirements for them. Therefore, lending activity from there table will be restricted, which will open up further market expansion opportunities for private banks. Therefore, we continue to prefer private over public banks for recommendation.
 
Are you bullish on the infrastructure space right now, or do you foresee rising yields and borrowing rates impacting the sector negatively in the next few months?
We maintain our positive stance on Infrastructure space considering the sharp increase in order book profile of several construction companies.

Companies which are increasingly on engineering, procurement and construction (EPC) model are expected to do better. Rising interest cost scenario has always been detrimental for the industry. However, we are still hopeful that interest cost scenario is likely to remain better compared to 2012-2013 level.
 
In terms of fixed income markets - we recently saw yields falling despite the RBI raising rates 25 basis points. Does this indicate that the worst is behind us when it comes to the debt markets? Is a lot of pain already priced into current yields?
Current yield of 10-year G-Sec bond is broadly flat in a month with high volatility witnessed post rate hike by the Reserve Bank of India (RBI). A sharp increase in buying from DIIs was the primary reason for range bound yields. However, a persistent rate increase by the Fed (two more is expected in 2018) and higher chances of increase in consumer price index (CPI) are expected to keep fixed income market volatile in the medium term.
 
Lastly, what would your top 3 "pre-election" plays be - in terms of specific stocks or sectors?
Consumption driven by rural economy and infrastructure sector appears to be clear beneficiary considering pre-election plays. We expect tractor demand to be strong led by higher MSP prices. Further, two-wheeler segment and cement are also expected to witness healthy traction.