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Where are you seeing the markets headed right now? There is so much at play. There is the tariff overhang, earnings, as well as sector churn. Now that we have crossed the 25,000 mark, do you believe that after a little bit of consolidation, Nifty could break out and now maybe we are looking at better days ahead?
Nitin Raheja: If you go by the Q1 earnings that have been declared so far, it does not seem so. It does look a little challenging for the Nifty to break out at least in the short term from the band that it has got into because the first quarter earnings are probably going to be the most challenging as we go ahead and this recovery is going to be more back-ended.
I just heard about the government contemplating increased government spending. I think that is clearly a sign that the government is worried that growth is faltering. All supply side measures in the form of liquidity in the economy, lower interest rates, tax cuts are having a back-ended effect. So, the government wants to frontload that through spending and that is what we are seeing. So, Q1 is going to be challenging and in that sense, it is going to be a little more challenging for the Nifty to break out given the valuation at which it trades.
For the past couple of months, the big theme that everybody was latching on to was the financials. The numbers coming in from the heavyweights HDFC Bank, ICICI Bank have not been a great set but markets are finding some resilience. But the mid and smaller banks have not performed up to the mark. What are you looking at within the financials?
Nitin Raheja: When you look at the financials overall as a sector, in a scenario, where liquidity is ample and there was this frontloading of interest rate cuts, there is naturally going to be a compression in margins. However, the ability of big banks to absorb some of that and yet have levers within themselves to be able to overcome that short-term margin compression is far better. We have seen that the two larger private banks that have declared Q1 numbers, have been well received by the market and they have been very positive numbers as such.
Some of the mid-tier banks, in the next two quarters, will see the impact of this margin compression taking place. Having said that, if this is a front loading of cuts, then next year we should see banks do well. As credit offtake picks up and the compression in margins is behind us, we should see earnings growth come and the valuation at which some of these banks trade is interesting.
The other element is the capital market players. That continues to be a space which is seeing resilient flows. So, whether it is the asset management companies or companies which provide services in the capital markets, that is another space doing well. Intermittently, NBFCs are the initial beneficiaries of the rate cut and they should show good numbers over the next couple of quarters. So, as a space it looks very interesting. The space has done well in the last six months. It has been one of the best performing sectors and it should continue to do well.
