Do you think the auto sector will maintain its strong momentum and continue the rally we have seen recently?
What happened with autos, especially in the last four months, is that expectations were very muted and we saw a rally in the new year, but again, that’s more on passenger vehicles and tractor manufacturers. Two-wheelers are still seeing a lot of pressure, so it’s not really showing a change in demand, it’s an increase in demand, because two-wheelers really indicate to you that rural demand is coming back. So, I would be wary of this auto bounce. It’s more technical than fundamental based on what December’s wholesale figures suggest.
What we have seen on the retail figures is that October was a good month, followed by a softening in November. Let’s look at the retail figures for December, it will give a better idea. More than the auto manufacturers, I would say the tire companies are looking better because of where the oil prices are, but oil prices have gone up in the last couple of days, but I would still say that maybe the auto ancillaries will be better. While this passenger vehicle recovery is more technical than fundamental, demand is still not the kind of boom we’ve seen in auto passenger vehicles. The two-wheeler is again still quite compact.
What’s your read on the upcoming earnings season?
Markets are now bracing for a very weak earnings season. But what happened with the quarter two numbers, the downgrade became a big part of the factor, as the monthly operational analysis revealed, more and more expectations were muted. Therefore, we can see that any positive swing by companies outperforming expectations will see overseas moves in shares. So, right now, the good news is that the market is very calm, very pessimistic. Almost the street consensus is that emerging markets are weak, a strong dollar, a lot of Trump uncertainty, and all this will lead to weak FII flows into emerging markets.
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India is also seeing that dampener, with elevated valuations and a weak quarterly earnings season for India and expectations for two more similar earnings seasons. So, that sets us up for market surprises on the positive side. Now, how much the companies will deliver, we will know in the next three weeks. We have two big events coming up. One is the earnings season starting next week and the other is the budget. Again, in the budget, unfortunately, we see more talk than actuality rather than on the ground analysis. But institutional investors, the number they need is the fiscal deficit, the quality of your revenue, the quality of your spending, how much you’re going to put in capital. It’s a five-minute exercise for institutional investors, but we’ll see it in a very drawn-out cycle over the next 25-28 days. So, have to go through it.
So, I would say earnings, budget and what Trump does.
I’m optimistic because we’ve seen this kind of miscalculated certainty in the markets before. 2022, September-October, 65 out of 65 economies said the US economy is headed for a recession in 2023 and nearly 26 months later, we have one of the strongest US economies. So, this year we’re going with very strong US exceptionalism on the economy, the flows in the US stock markets, the outperformance there and we could be surprised and the money coming into the emerging markets. So, let’s wait and see. But the street consensus is quiet on India. I will go against the consensus.
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