FMCG companies will see decent volume growth: Abhijit Chakraborty, Fortune Financial Services

ET Now Apr 30, 2012, 05.01PM IST

In an interview with ET Now, Abhijit Chakraborty, Sr VP-Institutional Equities, Fortune Financial Services India Ltd, shares his views on the banking and FMCG earnings. Excerpts:

ET Now: How do you read into the banking earnings that we have got so far? ICICI Bank, Axis Bank and even some of the PSU names like Bank of India, Vijaya Bank, they have all surprised the market with their numbers.

Abhijit Chakraborty: Absolutely, the banking results of all the majors in the private sector as well as Bank of India today have taken the market by surprise. Not only have they managed the decent amount of credit growth and improvement in the margins, the asset quality for all these banks and the sector as a whole has improved quarter on quarter. This is a very significant and positive development. RBI's move to cut CRR by 125 bps and the repo rate by 50 bps is significant and decisive to signal the reversal of the monetary policy. I feel that the market or the banking stocks have not reacted to the extent which was expected on RBI's policy action because there were other overwhelming concerns about fiscal deficit and GAAR provisions. But now with the results coming out, there will be much more confidence to go long on the banking stocks and the front line banking counters as well as Bank Nifty could be a good long trade. There is an expectation that even SBI could see deterioration in its asset getting arrested in this fourth quarter. That should also add to the overall positive sentiment.

ET Now: Your take on what we have seen from Maruti because it was a pretty much anticipated set of earnings, turned out to be muted and today the stock is down about 2.5%?

Abhijit Chakraborty: Yes, it was expected that Maruti will see a better fourth quarter compared to third quarter because of the volume pick up happening in the company after the factory lockout period got over. But the fact is that the performance was slightly less than what the market was expecting, especially on the EBITDA margin front. So that is the small disappointment. Also, the fact that in Maruti's portfolio they make lower kind of EBITDA margins on their diesel car portfolio compared to the petrol variants and going forward we are seeing the demand uptick being stronger in case of diesel portfolio. Also, the Yen versus rupee currency fluctuation continued to be an overhang on the stock. So all in all, you see that Maruti is also not a very cheap stock. It is trading at about 14 times PE on FY14 numbers. There could be a period of consolidation in the stock because it has already seen a decent amount of upmove. Once the production resumes at its plant, there could be a period of consolidation, but I do not see a significant upmove in Maruti from the present levels.

ET Now: What are you expecting from Hindustan Unilever?

Abhijit Chakraborty: FMCG companies being led by Hindustan Lever will continue to see very decent volume growth and the margin expansion is also like to be not very significant, but is going to be an uptick over there because what we have seen is that most of the FMCG companies are beginning to cut on the ad spent and that trend will still continue in the fourth quarter. Overall I feel that FMCG majors will continue to do well because of the underlying consumption demand being very strong in the economy and the price increases that have been affected by most of the FMCG companies will also help them in not only protecting the margins, but also boosting the top line. So I am positive on Levers and let us see how the results pan out.

ET Now: How would you position yourself when it comes to a couple of the consumption themes? How would you position yourself in names like Titan now?

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