Q1 nos to be within estimates; worst yet to come: Tata MF

Ved Prakash Chaturvedi, MD of Tata Mutual Fund, said
the June quarter earnings would be within estimates, but the worst is yet to come.

Excerpts from CNBC-TV18's exclusive inteview with Ved Prakash Chaturvedi:

Q: First your thoughts on July 22, the vote of confidence; what impact do you see that having on the market, would it be substantial and a durable impact or just one knee-jerk and we are done with that?

A: A lot would depend on the outcome, isn’t it? I suspect that if we have a continuation of the present government, the market will breathe a sigh of relief and move on with global trends; if global trends continue to be positive, Indian markets will be positive. On the other hand if something else happens, then I think we will be expected to be in a period of uncertainty and the markets will react with concern.

So I suspect it would be quite an interesting day to watch.

Q: My question was more on the lines of the durability either way of the reaction. Either way do you think it will end with a day or two or can that be a bit of a trend decider in the near-term, you feel?

A: I think it can be a trend decider, if the government does not stay, then I think we will go into a period of uncertainty and we will certainly see a prolonged period of market uncertainty. I think if the government stays, the markets eyes will return to what is happening in overseas and the trend thereafter would be linked largely to what is happening overseas to the oil situation, the inflation situation, the fund flow situation etc. So I think if the government does not stay certainly it will be a dramatic trend decider to my mind.

Q: What about the monetary policy if there is a reiteration of a hard stance, if there are a couple of tools used and raised, do you think it can do deep damage for the market or are we expecting this increasing rate curve now?

A: I think some amount of an upward bias and tightening is already discounted in the market. I think people realise that this inflation thing is not going to go in a hurry, may be longer than expected. The RBI will have to react in a year when elections are due, almost certainly every tool in its bag, which is there to curb inflation will be used. So I think market will be anticipating it.

Certainly they will react to the event and certainly they will react to what is said at the event. In case the outlook thereafter continues to be grim, I think the markets will certainly react with concern. So I am afraid that while markets have digested some of the news yet to come, I suspect that on the event there would be some more reaction, which would not be very positive.

Q: Politics usually triggers off a very nervous reaction and we haven’t heard of anything coming in from the retail side just yet. Do you think there is some big uncertainty from the political front, it could cause some problems for the mutual fund side or the retail side?

A: I think what has happened on the retail side is that many people who have put money over the last five years are still making money. A lot of the retail participation happened in 2004-2005 and those people are still making money. The people who are losing money are the people who have invested more recently or people who have invested additional money more recently. So the experience on the retail side for mutual funds has been very good, people have stayed on, in fact I can say about Tata Mutual fund that we almost got money inflows on everyday for the last six months, not a huge amount it is a trickle but actually money is flowing in, which is unlike the experience we had in the last dramatic fall we had in 2000-2001.

So my sense is that we have a more mature retail investor, we have a more mature financial advisor. Large part of the retail market is still making money at these levels, given the fact that they came much earlier and hence I think they will stay. I do not think that people are reacting or are in the frame of mind to react to any political negative news. In fact, the feedback that I have at the ground level from the very large number of cities that we sell in is that people are looking at this as an opportunity to get in and they are asking whether it is time now, or whether they should wait for sometime and get in more gradually.

Q: There is one view in the market that is the market has got terribly oversold and just in the medium term, it could give you a good rally even if has to go down and test these lower levels or go even lower in the longer term, do you agree with that hypothesis that things get better before they get worse again?

A: A lot would depend on the global oil situation and at least the last 24 hours have been positive on that area and largely there is a global recovery and we hope that the Indian markets react to that. My sense is that while clearly there is more uncertainty to come and even on July 22 the government passes the muster, the period of uncertainty will not end because it would be a government befitting majority and that has its own dynamics, both for policy decision making and also the stability of the entire environment.

So we will be in an era of uncertainty till a decisive political mandate comes in after the next election; before that I am afraid we will react to various things including the news of inflation, interest rates, what’s happening in overseas markets etc and hence maybe you are right that maybe things will get a little better but maybe the worse is yet to come.

Q: Still quite early in this quarter, but how are you feeling about the way earnings are shaping up?

A: My sense is that for this quarter’s earnings, the feedback that we have from the companies and analysts is that it would be in line with expectations and there would not be a huge amount of disappointment. However as we move into the September and the December quarter earnings particularly on reasonably high basis of last year, there could be some early signs of disappointment and many analysts are already reworking their numbers because the high interest rates are beginning to bite and the overall flavor of concern is beginning to bite in certain sectors and at least temporarily there is a feeling that for the September and the December quarter, the earnings may not be as robust as originally expected. So I would say that the June quarter earnings would be in line with expectations and the September quarter earnings may disappoint a bit and the December quarter earnings, so those are the quarters that you really have to watch out for.

Disclosure:

It is safe to assume that my clients & I may have an investment interest in the stocks/sectors discussed.

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