Motilal Oswal: Positive corporate earnings hint market is set to grow by 10-11%

Motilal Oswal, the Chairman and Managing Director of Motilal Oswal Financial Services Ltd, in an exclusive interview with Anil Singhvi, the Managing Editor of Zee Business, said corporate earnings are in very positive territory and that the year is set to throw up a growth of 10-11 per cent at Nifty level. He added, that as per estimates this growth may well scale up to 18-20 per cent in 2019 and 2020. Notably, Oswal said that even though this is an year of elections, investors must not see too much in it. However, he did add that the trading community should be cautious as the results may bring volatility in the market. Here are the edited excerpts from a comprehensive interview:

Q: Look at the macro sector. Crude oil is on the boil and rupee is weakening, but the good thing is that our market is not falling in a similar vein. Can you tell something about what should be done and the direction in which the market is heading?
A: When it comes to the market, we say ups are permanent and downs are temporary and the upcoming election makes the moment politically sensitive. Corporate earnings results are very positive and it seems that the year is going give a growth of 10-11 per cent at the Nifty level. Our estimates say that the growth will scale up to 18-20 per cent in 2019 and 2020 despite the banking and pharma sector running low. I am optimistic and can say that earnings will grow if your stock and sector selection are good.  

Q: What will be your suggestion to investors in the backdrop of Karnataka elections, whose results may have a positive or negative impact on the market? As the results of the election are going to have its impact on the market, would you like to advise investors to be cautious? 
A: This is an year of elections and I think that the investors must not see too much in it. Definitely, they, the trading community, should be cautious as the results may bring volatility in the market. Majority for the Bharatiya Janata Party (BJP) will bring positive signals in the market and vice versa will happen if the results go against the party or it fails to secure a majority. This result will be treated as a basis of speculation for 2019 General elections too. 
But, I have always said that the market results depend on the fundamental call as well as the direction in which economic growth is heading. Secondly, this is an election year, which means government spending will go up, the rural economy is supposed to go up too. Consumption is good and auto sector is performing well and will also increase during the CapEx cycle. Overall, IPO and mutual fund market will remain attractive. Thus, fund flows are going to be positive for the market and it will sustain momentum. 

Q: The results of past two quarters in case of private banks and NBFCs hinted that investors confidence has been shaken. But, the latest results say that the sector has been able to attract people. What is your take on private banks and NBFCs? 
A: Everything is linked to economic growth, which is reviving. There are positive signs of credit growth and NBFCs have also seen huge growth over the recent past. The overall indication is good. In case of banks, the ongoing fundamental problems in public sector banks like NPAs and issues related to management will not have any impact on the private sector. The growth in the financial sector is going to be  quite large. 

Q: You have always been quite bullish on consumption shares and I have seen that the results in this quarter of some consumption companies were very strong. Do you think that people's trust in the sector is still intact?
A: Maybe the consumption sector stocks are priced too high, but I have always been positive and optimistic about the sector. If seen closely, predictions related to good monsoon and government's plans to make a huge investment in the rural sector will boost the sector. 

Q: Do you think that it is a time when shares of IT sector should be bought? The attitude of the people in this sector has become quite negative. Should they change their attitude towards the sector?
A: If we talk about the IT industry, you will see that the top five companies in the world belong to the IT sector. The sector is a huge business growth driver and is available in almost every sector. If seen fundamentally than it is a big sector for business and it impacts our life in one way or the other. 

Q: The price of crude oil is going up and the rupee is depreciating and the RBI governor has asked the finance ministry and finance minister to be prepared as their balance of payment situation may worsen. Does this indicate that the rates of interest will increase in India soon?
A: I don't think that the interest rates will go up by 2-3 per cent. See, interest rates are dependent on inflation, GDP growth as well as the fiscal discipline. In terms of macroeconomic indicators, nothing other than oil is there that can create a problem in terms of interest rates. If it goes up then maybe by 25bps but for a short term. 

Q: SEBI has allowed exchanges to extend the trading time for equity derivatives till 11:55 PM from October 1. Tell me, would you have supported the decision or not if you were a director of BSE? Also, as the promoter of Motilal Oswal Financial Services, what is your take on the decision?
A: We are a globalised market and economy and we will have to follow the practices that are happening in the global market. Secondly, it's not so that we will have to work for more hours at least when 60-70 per cent work has gone online, which enables investors to buy and operate their accounts. Definitely, our resources will have to work in extra shifts but I can see that the new direction is coming with ample opportunities to grow. I see the positive side of the direction rather than seeing it the other way round.

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Q: Looking at the global practices, don't you think that just index-like futures and options should be traded instead of trading the 260 shares that bring 90 per cent volume of the market? 
A: Let the market and the investors decide. All products are available and let them decide where they should trade, maybe in the index or in individual stocks. It will be their choice. I feel the volume is going to be more on indexes. Earlier, when we started trading the markets were opened between 12 pm and 2 pm and gradually, it increased from 9 am to 3:30 pm. Changes are dependent on the demand of investors. 
It is better to be competitive in the global market. In addition, the global investors, who are a big component of our market, will be free to trade at ease. Overall, it is a good move, but will take some time to settle.