There were positive surprises for Q3 earnings: Abhay Aima

Abhay Aima, Director, HDFC Securities told NDTV Profit that there were surprises on the positive side as far as third quarter earnings are concerned given the pessimism in the market. He said that the money is chasing companies that have performed well.

“As far as banking sector goes, the non-performing asset numbers are not even close to what actually the numbers are. Net interest margins are going up for banks, which is a very positive scenario,” he said.

Below is the complete interview. Also watch the accompanying video.

What is your opinion on Q3 earnings of companies? Have the numbers been better-than-expected?
 

I think the surprise was on positive side given the pessimism that was there. The scenario was being painted as a doom's day' on the financial and infrastructure side. The results may not look good, but if you look at what was expected or the way prices have beaten down, the surprises are on the positive side.
 

 Is there dumb money coming in because despite weak results, many stocks are up. The market is not discriminating?
 

I don't think there is any money, which is dumb money. Conceptually, dumb money does not exist. When you look at results, you also have a reverse scenario of results being good but stock prices being bad. The question is what was expected. So, please do not look at results in terms of margins, etc. So, in relative term, look at where stock prices are and what was expected. If you look at the NPA numbers, which are doubted as far as banking sector goes, they are not even close to what actually the numbers are. The NIMs going up for banks, which is a very positive scenario. 

So when you see numbers like that, two things will happen. If you are short, you will do short covering and some money will come in. At lower levels, the money that comes in is normally longer term money. The faster or the more speculative money comes in when the markets move decisively in a direction, which is upwards or downwards. 
 

There is a commentary that SBI focusing on improving margins in a macro-environment is detrimental in the long term and it is going to lead to higher credit costs; eventually some of the restructured assets are going to fall back into the 'bad loan' bucket. How do you read that?
 

If you did not expand margins then the argument by the so-called analyst was that it is a weak environment and the banks are not doing well; credit growth is not good, etc. You can play it anyway you like. But margins are looking good and now they have an argument on that. The point I'm trying to make is, I believe in the fact that analysts do not know better than what the management is saying. Otherwise that analyst would have run a bank.

Provided that you got faith in the management, the management can also be wrong, but then still they know better than the best of the analysts around. Hence, I will rather go with what the management is saying if it is a trustable, clean and honest management. Analyzing the number is a different thing, but as far as the policy goes, I would trust the management than the analyst.
 

What are your analysts saying on SBI?
 

If you look at the non-performing asset (NPA) number, which is gone up, the (SBI) managing director said that instead of providing 15 per cent we are going to provide 50 per cent. There is a loss on the mark-to-market or equity portfolio. So it is not as bad as it is painted. Not only SBI Q3 numbers, but third quarter earnings of other banks like Axis Bank or ICICI Bank, are not as bad as expected. Where have those analysts disappeared who said that the financial sector is going to doom?

But prices have come back quite a bit, SBI has come up 40-45 per cent recently...
 

I'm not going by price movements. If you are making a prediction as an analyst, then give due weightage to what the management is saying. Secondly, when you go wrong, I don't see anyone coming back. People get influenced by opiniosn; they take their financial decisions accordingly. Anyone can go wrong but then they should come back and clarify. I don't see that happening. People will end up losing money and that is not good for everyone concerned.

Do you think the worst is behind, in terms of asset quality issues of banks?
 

In the short term, there might be stress on the assets. We do a lot of things differently compared to how things are done internationally. Even in terms of bank stability, some of the few countries take CRR, SLR in it. So, you have to take all this into consideration. 

Another thing about the banking sector in India is, India is an under-brand country. So, banks have the pricing power here. So, margins may get impacted temporarily, but it is very easy to bridge that gap because we are an under-brand country. So, it is a biased market to that extent. For a quarter, when the interest rates move either way, it is very easy for the banks to make up for the margins.

How is the securities business doing? Is interest coming back in broking, securities business?
 

I don’t think the retail participation has increased and that's a bad news for the securities business. However, though it is negative for that business, it is positive for the markets now. It is an indication of what kind of people are participating and what kind of money is coming in. I don't think that business (retail) picking up. People are still very apprehensive, looking to sell on the retail side.