We are in a severe correction in a bull market; expect 2-3 quarters of soft earnings: Dipan Mehta

Although some of the commodity producers have come out with a good set of numbers, even over there, volumes are flagging off and there are just far too many disruptions on the supply side and that is why it is best to wait and watch. Long-term investors have gone into a bit of a hiding at this point of time and although there is money to invest, that money is waiting on the sidelines waiting for some amount of improvement on the macro factors and then look at stocks which are now available at reasonable valuations.

But one has to deal with at least two or three quarters of soft earnings going forward and that is the dilemma that investors are facing at this point of time.

Can we sustain this uptick that we are seeing right now?
I hope so and rains should bring much relief to the markets and there is a logic why markets do well when it rains. The same logic which worked during the pandemic is generally that when it is raining very heavily, people are mostly indoors. Most of the industries and businesses go through a bit of a seasonal slump and whatever liquidity is available, they want to play in the market and that takes the market up.

This was something explained to me many years ago by a veteran in the stock market that monsoon is the best period for the stock market because other businesses do not do well. So let us hope it plays out true this time as well. I think we are in a situation where we do not have visibility as far as the current problems will come to an end but no doubt we can certainly get part relief from time to time, some form of good news in the form of good monsoons, further revival in demand and softening of prices. There are many factors to look forward to as they start turning positive.

What do you make of banks? Are private banks the best space to be in?
Absolutely. We are very positive on banks and they should be able to navigate this rising interest rate situation which we are in at present and as and when the economy improves, we will see even lending volume move up. On the whole, the worst is over as far as NPAs are concerned.

Looking at the track record for the past 10-15 years and how the banks and NBFCs have managed the various crises which the industry has faced, in our opinion it is best to go with the largecap banks like

, Kotak, Axis, ICICI. These banks which have really delivered through thick and thin over the past four-five years or so, have managed their NPAs well when most of the banks other private sector as well as PSU banks have been bleeding in terms of NPA, these companies have managed pretty well and the prospects are equally good for the large banks as they are for the smaller banks.

In fact, some of the larger banks are growing at a much faster pace than the smaller banks as well. So there is no real advantage to buying midcap or tier II banks. If we stick with quality over here, one should get growth, earnings and there is safety as well in larger balance sheet sizes. I am very positive on the banks and investors who are underweight in these four-five top banking names should look at this opportunity to get equal or overweight.

What is the market anticipating from the upcoming AGM this time?
It is more to do with the quarterly numbers. These June quarter numbers which come for Reliance will be the best ever and maximum alpha will come from the refining and the petrochemical divisions and that is what the Street is trying to discount and factor in at this point of time.

At the same time, at the AGM, we can expect usually bumper announcements and from our perspective we are looking for ways the management is looking at unlocking the value which is there in its subsidiary companies. As of now Reliance is a complete conglomerate of businesses which are not completely connected with each other.

For example, telecom has got nothing to do with the refining business and the retail business with telecom or the refining business per se. So how are these businesses going to get unlocked from a minority shareholder perspective? That is the key metric that we are watching out for at this point of time.

If IPOs are proposed for Reliance Jio as well as Reliance Retail, then that will mean that in

the holding company discount will start to creep in but if the company split at identical shareholding pattern for all the three businesses, then that will be incredibly positive for minority shareholders and that should attract many new investors as well because today if somebody wants to buy into a great retail story, then the only indirect way is to buy Reliance Industries. But then one is looking at buying the other businesses as well which may not be as bullish over the medium to long term. These are the kind of nuances which come into play when one is looking at Reliance Industries. The stock price is moving up largely because of excellent quarterly numbers and at the AGM all that we can expect is an announcement in terms of unlocking value in the subsidiary companies.

What do you make of the fiscal situation considering crude is at $120 a barrel?
Till we have a handle on oil prices, one could not expect serious rally with deep conviction and we need oil prices to kind of flatten off or at least correct from these levels because clearly it is going to impact the currency, the profitability of companies, the sentiment and overall macros get compromised because of higher oil prices.

In my opinion, that is one of the biggest threats to our market. Recent reports are suggesting that oil prices can go to as high $140-150 or so and that can certainly act as a major dampener for our markets and even from these levels one could see another 10% correction if oil prices continue at that level.

So let us see how it plays out because oil price is something which nobody can predict. It is very difficult to predict which way they go. One expects oil prices to spike up and suddenly start correcting and vice versa also happens. For the time being, the view remains a bit cautious because of higher oil prices and as and when we see the supply for oil improving and oil prices correcting, automatically we will see sentiment improving in global stocks and Indian stocks in particular.