Speaking to CNBC-TV18, Ajay Bodke, VP- Equity of Standard Chartered Bank said that there would be good support for the market at 19000 levels. He is positive on the markets in the medium to long term. The markets should end the current year with 26-27% with Sensex earnings, he said. He is positive on material space - he expects medium term earnings for ferrous companies to be strong. He is also positive on interest sensitives and expects interest rates going down in next 12-18 months.
Excerpts from CNBC-TV18’s exclusive interview with Ajay Bodke:
Q: What is your outlook for 2008 from here?
A: I think we are positive on the markets in the medium-term to long-term, we have been in a corrective phase over a last few days, but around 19,500 levels we do see a very good support coming to the market.
If you look at the earnings growth expectations, I think when you started the financial year, the consensus earnings estimates that everyone had factored in was around 16%-17% for the current financial year and around 13% for FY09. But we have seen that in the first half, the Sensex earnings already have grown at around 28%-29% and as we move to Q3, I think the trend seems to continue.
So I think most of the analysts are upgrading their earnings estimates and we should end up the current financial year with around 26%-27% as a best case for earnings growth and moving forward for FY09, one could look at around 20% growth in earnings.
We are looking at Sensex earnings of around Rs 900 for ’08 and around Rs 1100 for ’09. So at the current market levels, we are trading at around 21 times current year and around 17-17.5 times one year forward earnings.
If you look at the return ratios for the Indian markets come early 80s and mid-90s, today we are looking at around 20%-21% of ROEs and the market is a comparable market; China which competes with us for inflows is trading at pretty high valuation as compared to India. So all this makes us fairly positive on the outlook for the markets in the medium-term to long-term.
Q: You are positive on commodities - both ferrous and non-ferrous any concerns because of the global uncertainty and any specific ones in which you expect to see some kind of earning surprise?
A: I think we are positive on the material space, let us take ferrous part first. If you look at the Indian ferrous companies vis-à-vis some of the competitors in the Far East, almost all of them are fully integrated in so far as iron ore is concerned or coal is concerned whereas the competitors from Korea or China or Japan entirely depend on imports of iron ore and coal from Australlia, India, South Africa or Brazil. So I think the sharp spike that one has seen in the iron ore prices, which is part of what I believe is a super cycle in both hard and soft commodities will not be impacting the Indian manufacturers at all and some of the measures that the China has implemented in terms of the emphasizing energy importing exports also has led to the prices of some of these commodities gearing up.
So we have had the best of both worlds because the prices globally moved up, we have also moved up our prices in India. At the same time our raw material costs have not really gone up as compared to competitors. So I think in the medium-term we do expect the earnings of ferrous companies to be very strong and hence we are positive on the ferrous universe in India.
Q: In your equity tax saver fund, you have got a big weightage on financial services what do you like most in financial services, private banks, PSU banks or the NBFCs and brokerage cluster?
A: I think we are positive on almost all interest sensitives because we believe that interest rates in India have plateaued and going forward over next twelve-eighteen months, one would see interest rates going down. I think if you look at our portfolio, we have adopted portfolio approach and have built in positions wherein we try to map out the entire universe.
I think we have one of the large mortgage companies in our portfolio to map the tremendous growth that one expects in the mortgages sector in the medium-term to long-term. We also have certain banks that have corporate credit as their main stay because I believe that it is the corporate side of the loan book that will pick up the slack that one has seen on the retail side in the next twelve months time.
We have some of the names which focus on the corporate side of the loan book and also some names, which cater to the Tier II corporates. So I think we have the entire value chain in terms of we have mapped out the retail side of corporate side tier I and tier II part of the entire market.
Q: You have an IPO fund as well, at Standard Chartered have you been subscribing to the mega issues open?
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