Muted June quarter ahead, September may offer some relief: Dinshaw Irani

“It looks a very dull quarter and mind you September last year was the quarter when you saw negative earnings growth. So, maybe you will see some kind of uptick from the September quarter and definitely not the June quarter,” says Dinshaw Irani, CEO, Helios Mutual Fund.

So, what is happening to markets? I mean, the market suddenly is lacking any trigger. All the good news is out in the open. The bad news has suddenly drifted away. Even the concerns around monsoon and rain that also has been addressed two weeks ahead of the suspense.
Dinshaw Irani: Yes, actually, very interesting, the fact that everything positive has come out. The negatives are also there to overweigh those.

I mean, the tariff wars are out of the way hopefully, I mean let us see how it pans out on 9th of July when the final results come out from us. But looking at the results season, our results season per se, does not look that exciting actually. I mean, fundamentally if anything we have just deteriorated over the December quarter, still downgrades are happening.

The upgrade to downgrade cycle is definitely in favour of downgrades. The earnings for the index are getting cut. Valuations, as we stand today, are probably touching the kinds that you saw in September of 24, so we are somewhere close to that peak valuation and unfortunately there is no earnings growth to support those valuations.

I know it is always a bad idea looking at the revenue. But even if we look ahead, this year itself, I do not think anybody is projecting a low double digit kind of growth for earnings in the index. Talking about a high single digit kind of growth and that also is looking optimistic number given the way we have entered this quarter, the June quarter, because the earnings transcript or the calls that you hear from the management and bulk of them are done, they are not sounding great.

It looks a very dull quarter and mind you September last year was the quarter when you saw negative earnings growth. So, maybe you will see some kind of uptick from the September quarter and definitely not the June quarter.
The only bright lining that we see, I mean the sky is dark skies today and actually they are dark skies right now is probably the interest rate scenario given what US is going through, I think India has got a free run to cut down on interest rates, Trump is definitely looking at devaluing his own currency. So, India does not have a problem on the INR front, yes, so they can be aggressive in cutting interest rates where the inflation is very much in check with monsoons in play, the rural inflation also will be the one which will be coming off quite sharply. So, RBI is a free run and that is the only silver lining, but otherwise fundamentally things do not look that exciting today.
I am sure some themes must be looking exciting to you because the last time you connected with us you highlighted the financials and power as a space are looking good to you. Give us the latest sense on these and any other theme that you are picking up at this point in time.
Dinshaw Irani: So, power space we will take a breather according to us because all along we have been calling out that there is a scarcity of power and supply of power and stuff like that, but with the summer season coming off so appreciably, I mean as in very short summer season, there is a surplus now happening, so maybe you will see a breather in that space.

However, in the financial services we are on track. I mean, interest rate cuts, obviously RBI is looking at increasing supply in the system which was a big constraint for the banks per se and interest rate cuts which was a big overhang for the NBFCs, these two sectors are going to do fairly well.

Banks may suffer a slight compression in NIM because of the cuts in interest rates, but that will be overcome by the way of the demand going up for credit per se and in terms of NBFCs, they are perfectly placed because they play both legs of the balance sheet are on short cycle basis.

So, even an interest rate cut will be a beneficial one for them going forward. So, these two remain, I mean this sector remains fairly strong.

And going forward, we remain negative on it, that relief rally which came about looks like done and dusted. FMCG, again, do not see much of upside. There may be some demand uptick because of the rural inflation going down, but apart from that the down trade is going on happening, on the urban demand front do not see again much of upside happening out here. So, things are not that great overall.

We continue to be fairly comfortable in the hospitality space. Again, as I said that the quality rooms are not available and that is what is putting up the ARRs of the particular sector. Hospitals again, derivative of hospitality if you will, but the same thesis applies out there because again quality rooms are not available for healthcare and that is where we remain comfortable.

Hospitals and hospitality these are two themes you are bullish on?
Dinshaw Irani: Yes, apart from NBFCs and obviously the new-age companies.