M&M, Hyundai India Poised For Gains, Auto Sector Outlook Stable For Two-Years: Macquarie's Sandeep Bhatia

Mahindra & Mahindra Ltd. and Hyundai India Ltd. shares are expected to 'do well' in the next two years as the outlook for the automobile sector is bright, according to Sandeep Bhatia, managing director, head, equity India at Macquarie Capital.

"For two-year term, the automobile sector's outlook is good. The low interest-rate regime will support the industry. Moreover, income will increase once the 8th pay commission gets effective which will support consumption," Bhatia said.

Macquarie Capital is expecting one more rate cut from the Reserve Bank of India. The current repo rate is at 5.5%. The central bank has surprised the Street with a jumbo 50-basis point rate cut in June meeting, while it stands pat in August.

Banking and financial sectors did okay in terms of earnings growth, according to Bhatia. "The challenging part is small and medium portfolio which is generating bad loans. In South India, these issues are real. There is an ongoing slowdown which will weigh on overall portfolio for the rest of the year," he said.

"The flows from domestic institutional investors are holding up the market. The SIP flows are at an all-time high," he said. On the other hand, there is disappointment in earnings growth. "Despite this, markets are not declining much because there is a technical liquidity-driven situation," Bhatia said.

The worst case scenario in terms of tariff-related cases is 30–35 basis points impact on GDP growth in the near-term. "India will need to diversify its export portfolio which will take a longer time," he said. In longer time, these issues will be watched.

"As far as India is concerned, the penalty because of Russian oil imports is just one reason. There are underlying reasons and multiple aspects involved. The expectation of evening-out all in one meeting or overnight is too much," he said.

The upcoming meeting between US President Donald Trump and Russian President Vladimir Putin is not the final one. Bhatia quoted Trump that in case both parties failed to reach an agreement, there is going to be more. Hence, there is no point of building too much tension around this one. 

"The essential question is whether there is going to be a territory swap between Russia and Ukraine which the latter is opposing," he said.