Anand Tandon of Brics Securities expects the next quarter to be weaker than this quarter. “The Indian market results so far are on track and they haven’t shown any dramatic surprises by and large one way or the other and have tended to be a tad weak.”

Commenting on Barack Obama’s trillion dollar package, he said it looks somewhat inadequate. “All that it would end up doing is reducing unemployment by about 2%, but given the expectations of a further economic slowdown over the next 12 months US unemployment rate will be back at 7%.”

The Obama regime, he said, may affect two sectors, IT services and pharma: the first one negatively and the second one positively.

Here is a verbatim transcript of the exclusive interview with Amit Tandon on CNBC-TV18. Also watch the accompanying video.

Q: What’s your own sense on what the big Obama takeaway be for the markets?

A: He (Obama) comes on the back of a lot of expectations especially the politics of how the parts of the world will behave post the President change but on the economic front so far whatever he has said and talked with too much hope. He has spoken about a trillion dollar package which at the moment looks somewhat inadequate. We had a lot of economic commentators point out that all that it would end up doing is reducing unemployment by about 2%, but given the expectations of a further economic slowdown over the next 12 months the US unemployment rate will be back at 7% which is what we are at currently. In other words USD 1 trillion is not going to do anything to improve the situation from where we are as far as employment goes.

So the expectation therefore is the nature of the package has to be come much larger and there are a lot more policy measures that are needed to be announced. It will be a little unfair to assume that you will be in a position to outline all of that or to do too much of that in the first few days after he takes over. Though I am sure the transition team would have done a lot of thinking already.

Q: So what does it look like after looking at the economic numbers of the last fortnight and also what is happening in the Europe with RBS etc? Do you think global markets should brace themselves for a little bit of a rough ride over the last few weeks?

A: The economic numbers continue to look down and that is entirely as per expectations and the numbers in the US are also likely to continue to move down. So I don’t think that’s something which is surprising. The Indian market results so far are on track and they haven’t shown any dramatic surprises by and large one way or the other and have tended to be a tad weak. We continue to expect that the next quarter too will be weaker than perhaps what we have seen in this quarter.

I don’t think we will have much difference so the real equation is from an Indian standpoint on whether there are any huge policy changes the Obama administration brings. Two sectors that can get affected would be the IT services and Pharma, the first one negatively and the second one positively if we go on expected lines.

So whether or not protectionism is talked about, the fear will remain for some time that as the economy turns for the south protectionism will become something what most countries would look at around the world and as they call it better than neighbour policies may again become the order of the day.

Q: What did you make of the news on power and how would you approach some of the PSU power stocks?

A: For stocks, the news is good because contrary to what the rest of the world is doing in terms of interest rates you would assume the utilities would be a benchmark to some kind of rates in terms of target returns. Here we have a situation where you have been given a bonanza where inspite of the benchmark rates falling the target returns on the ROE have been raised up. So there clearle is an upside but the question is how much is left for it to trade. A company like NTPC continues to trade at many multiples of book values upwards of 2.5 times perhaps.

Therefore, I don’t know whether a 16-16.5% kind of an ROE will make much of a difference at that kind of a valuation given that risk appetite continues to be reasonably low. The market has already reacted and I think it has taken away most of the upside and maybe a little bit more. The logical thing would be to stay short on some of these companies.

Q: What about Satyam from here, how are you mapping the developments?

A: There is nothing much where you can really predict in Satyam, the best you can hope for is that some large country takes it over. The biggest disaster would be that the government is decided to step in and start funding it or even guaranteeing some of the loans to banks which can start funding and use banks as a proxy, that would be just because it is become kind of acceptable around the world that this stage to have companies being bailed out by the government. We will rapidly get to a stage in this country where all losses belong to the government and all profits belong to the share holders.

So for the moment I think the best thing the government can do is to exercise restrain and let the new board try and figure out a way to keep the company afloat. Much as we like to make sure that people don’t loose their jobs and the fact of the matter is that if the company has to shut it then it has to shut. So to try and make an economic judgment on how far the stock will go right now I don’t think is a feasible exercise. The best case situation would be to have somebody take it over because there are valuable contracts and valuable personnel in that company.

Q: What do you think – are there many more skeletons in the corporate closet out here which are waiting to tumble out or is the market just getting carried away with rumours?

A: There are a lot of corporate issues – there is no doubt in my mind on that but the only question is what the size is and how material would they be even if they were to come out. From the point of view of large companies, there would be a few which may get into trouble especially because of the fact that money is now difficult to come by and therefore the valuation game that some of the companies have played may now be working to their deterrent.

Look at it like this, the Satyam case itself, Maytas was actually in my view probably the reason why the money went out though of course we will have to wait for the investigation reports to actually reveal what happened to the money. But assuming that it was real estate where the money went into it, it was just using Satyam as a bank. Extend that to all real estate companies, multiple it many times over and you have the reason why RBI has allowed banks to restructure loans to the builder group and real estate community and not call it NPAs. However the fact remains that just because it is not called an NPA doesn’t make it an NPA.

We have a whole lot of issues which are right there in terms of where the money would have gone in and perhaps not come out. Obviously all of them may not be corporate governance issues but even corporate governance issues will be fairly widespread in the Indian economy and we have to accept that fact.

Q: There have been some rank disappointments from the standalone refineries. Are you worried about what Reliance might report down the week?

A: The refining margins as we have been saying time and again have been down and for example the MRPL results were there was Rs 1,000 crore loss on the inventory just gives you an idea of what the kind of losses that may be possible in much larger refineries.

In the case of MRPL for example the net worth is close to about Rs 2,000-2,500 crore; about half the networth is being knocked off as losses in the inventory. You can extrapolate that for different sizes of refineries but in the case of Reliance I would not think that the number will be as bad. Their refining margins will still be positive and reasonably robust.

source: Moneycontrol

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