Turnaround is possible

We do see a positive fallout of the Satyam episode in terms of tighter corporate governance norms. We could see increased transparency regarding bank accounts. We already have some proof of this with companies disclosing the details of their cash and bank balances. We will see further proof of higher transparency when balance sheets for FY09 come out in June.

As for promoter shareholdings,disclosures about pledged shares will allow investors to take more informed decisions. We could also have more frequent disclosures of shareholdings as compared to the quarterly disclosures currently.

Moreover,greater accountability of the board of directors,and more so of independent directors will help in reducing the clout of promoters.

•What are your expectations from Q3 results?

In our quarterly preview,we had given out estimates of a 20 per cent year-on-year (y-o-y) rise in revenue for the set of companies that we cover (excluding banks,NBFCs and oil companies) . The EBIDTA margins are expected to shrink,and profit after tax (PAT) growth is expected at around 8 per cent y-o-y. Higher interest costs and charges on mark-to-market losses on hedges and foreign borrowings will impact PAT growth.

•Do you expect a turnaround in the stock market in the second half of calendar year 2009?

We do expect the markets to start turning around in the second half of CY09 as expectations on the full fiscal results for FY10 start getting crystallised and expectations regarding FY11 start getting built up. Moreover,we expect the global economy to start responding to the stimulus packages already announced or those to be announced. In India,the election-related uncertainties will be behind us.

•Will FIIs be net buyers this year?

Despite the moderation in growth rate,India is expected to be the second-fastest growing economy in FY10. Several emerging markets are either commodity-driven or export-dependent and hence will be impacted more than India.

FIIs will look at growth economies while scanning through emerging markets. With the US dollar expected to depreciate in line with the weaknesses in the US economy,there could be outflows from the US.

However,the extent of financial strain in the developed markets will be an important determinant of FII flows. In case the financial markets take longer to recover,it might be quite a long time before FII inflows start.

•Why do you expect the US dollar to weaken this year?

Despite the weakness in the US economy,the US dollar strengthened against most currencies last year. That was owing to the pull out of money from the global markets back to the US due to the financial losses. Moreover,the sharp weakness in European and other developed economies also led to weakness in their currencies vis-à-vis the US dollar. As far as the Indian rupee is concerned,we believe that it may not weaken further against the US dollar.

•And how is a strong rupee expected to affect the stock markets?

This may be a comforting factor for FIIs who have lost money in the past one year because of the rupee depreciation.

•Banks remain in a risk-averse mode. Why are they not lending more to corporates?

Banks are not lending because of concerns regarding corporate profitability,growth and hence,repayment capabilities. We have already seen NPA (non-performing assets) levels rise,though marginally,for private sector banks that have declared their results so far.

•What needs to change before credit starts flowing freely?

These sectors need to achieve better levels of productivity and profitability. This will happen partly due to a potential recovery in the global economy and partly due to internal initiatives like cost reduction and achieving higher efficiencies.

•Which sectors offer good growth prospects?

With private-sector investments moderating and the government looking at increasing infrastructure spending,companies that depend more on government projects may do well.

While consumption has been affected,the impact has been largely on high-value items like houses,cars,and consumer durables. The slowdown has not significantly impacted rural spending or non-durables.

A stock-specific approach is best suited for this kind of market.

Select stocks in sectors like pharma,FMCG,telecom and banking can be bought.

•And which sectors should investors be wary of?

We are cautious about sectors like cement,and companies in the construction and capital goods sector that depend primarily on private-sector projects.