Valuations for bank stocks are likely to improve irrespective of what kind of government comes to power at the Centre, feels Taher Badshah, senior VP & co-head of equities, Motilal Oswal AMC. In an interview with Mithun Dasgupta, he says a deeper correction in IT stocks is not expected despite strengthening of the rupee. Excerpts:
Bank stocks have been one of the top performers in March. Going forward, do you see valuations for Indian banks improving?
Irrespective of what kind of government comes to power at the Centre after the general elections, valuations for banking stocks should improve. The new government will certainly take some action to boost the subdued growth. Some growth-oriented politics will be taken.
The improving global situations will help boost exports. All these are likely to ease the stress in the banking sector. Moreover, if a very strong government comes to power, valuations for banking stocks are expected to improve further. The performance of an individual stock will, of course, depend on the bank?s capital adequacy, Casa level and other important parameters.
A weak rupee had boosted IT stocks. But as the currency edged higher, we saw a decline in these stocks. How are they expected to perform now?
The IT segment was doing well primarily because of an improving global environment; a weak rupee was an add-on. With the strengthening of the rupee, the stocks have corrected quite a lot. But as fundamentals of Indian software firms are strong, I don?t see a deeper correction now.
Betting big on software firms, India?s MF industry boosted its exposure to the segment to a record high. Is the exposure expected to come down now?
It is already happening? Fund houses are selling IT stocks as some of them were overweight on the sector. Unless funds flow improve, the MF industry?s exposure to IT sector is not likely to increase further.
What is your view on the pharmaceutical segment? Do you think these stocks will remain attractive?
Unlike IT, pharma stocks are not homogeneous. They don?t perform in a similar manner. Some stocks might do better than others despite rupee?s depreciation. It depends on getting necessary regulatory approval for new products. Aurobindo Pharma did very well, while Dr Reddy?s is already having some problems with the Russian uncertainty.
Do you expect RBI to keep interest rates unchanged at its policy meet on April 1 on the back of a moderation in inflation?
Yes, both WPI and CPI inflation have come down sharply. Economic parameters such as the CAD and exchange rate are also much better now. But growth is not coming quickly enough. So, in this situation, the best case for RBI is to keep interest rates unchanged.
