The sprint is over for a lot of stocks.
Dipan Mehta: That is right. We are having challenges in the stock market at this point of time and many reasons have been offered like geopolitical events, FII selling, US markets and many other small and minor reasons. It is my clear cut understanding that we are in for a slightly longish and deepish correction because corporate results have been disappointing. So far, the numbers we have seen have been okay, but they have not been phenomenal.
When you look at the way the banks have come with numbers, midcap and largecap software, FMCG company like Hindustan Unilever, large companies like Reliance Industries, a few NBFCs as well, the results are good, they are in that 10-12% type of growth rates, but nothing which will like encourage you or induce you to buy more shares of the same company, especially given the valuations that these companies are trading at.
A lot of the profit margin expansion has come through commodity prices and that also will level off. And we are seeing minor compression of margin in a few select industries as well. So, it is not that everything is just phenomenal and kind of blue sky scenario as far as corporate earnings are concerned and that is going to be the pain point for the next six months.
This earnings season, next earnings season could be very disappointing and whenever you have earnings season you do a reality check what the trailing 12-month earnings per share is and what the price to earnings multiple is and you will find that the risk return reward does not favour you to make fresh bets at these levels.
Looking at banks which have come out with numbers, it appears growth is okay. But there is a sliver of concern in terms of NPAs coming back and I am talking about private banks here. Banks, in fact, are also slowing down because they are not getting a great liability franchise. So, for a sector which was supposed to make a comeback, the first flush of numbers has not been encouraging for them.
Dipan Mehta: Yes, absolutely. Gradually, compression of net interest margins is creeping in. Banks themselves have become a bit more cautious in lending which is reflected in slightly slower growth in advances. There is a war for deposits happening over there and they do not want to increase the interest rates. Thus it affects their NIMs even further and on the whole I think it was fee-based income trading profits which drove the bank earnings this quarter.