The Indian market is consolidating now in the run up to the Union Budget which will be unveiled by Finance Minister Arun Jaitley on February 28. Speaking to CNBC-TV18, Nirmal Jain, chairman, IIFL said it is unlikely to see a big rally or crash in market till Budget.
He believes the government is moving in the right direction and all circumstances are conducive for a 'historic' Budget. Jain also said that Budget is not the only criterion to judge the big-ticket reforms taken by the government. The government is taking lot of efforts to push through the goods and services tax (GST) which is commendable, he added.
Meanwhile, Jain continues to like private sector banks. He is bullish on defence space. If there will be some turnaround in the Budget cement and auto will be the early beneficiaries, he added.
Below is verbatim transcript of the interview:
Q: First a word on the markets that we have seen so afar through the course of the year especially in the last week or two?
A: Market has been consolidating now and till the run up to the Budget there will be uncertainty with one set of people being very optimistic and another set of people who will always say that Budget can not do any magic. Finance minister does not have any magical wand to make things overnight smoother or better.
Also, round level things will take time to show results so market will keep consolidating and I do not see market having a big rally or a big crash from here till Budget. Post Budget whatever cues they get from Budget that will decide the trend for the market.
As of now, we are seeing some corrective phase in this stock that have run up a lot and very select stocks that have got the coal allocation, the power sector which is now coming into limelight because some of the coal auctions have gone through. Other than that market is lack luster and just waiting for the Budget.
Q: How disappointed are you with the earning season that has just gone by and how long can the markets just run up on expectations of reform?
A: The earnings have been disappointing in the last quarter and I don't think they will improve in a very significant way in next one or two quarters. So, all the long-term investors, in fact most of the FIIs and mutual funds have their own analyst and they can understand things just the way you and I can also do that in most of the sectors you can't do anything in one or two quarters.
It will take some time till the sentiment improves, the investment improves, the demand improves and then the margins will improve so obviously it will take a while. But things are moving in right direction, people are betting on medium to long-term which indicates they are looking at earnings revival, maybe two-three quarters in some sectors, four-five quarters, depending upon the kind of sector that you are talking about.
Most people are still optimistic, market will never look at the rear view mirror and say that okay this is last quarter's earnings so let me give this multiple because that is historical, that has lost all its relevance but what will markets say that can these earnings- what is the outcome for next few quarters.
Last quarter or historical earnings are relevant only to the extent that they can give you some peak into future that okay will this trend be maintained, improved or worsen? So, market always looks ahead, looks at future and that is what it is doing.
Having said this, the earnings for this quarter were disappointing, in fact in some cases they were worse than what analysts had expected. The analysts downgraded their forecast to what reality is or how they look at the immediate quarter after.
It might continue for a quarter or more and then we will see things turning around. Just as you see credit ratings, they have already started and now there are more upgrades and downgrades that are happening on the debt rating, equity will take a quarter or two more.
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