DSP ML sees more -ve newsflow in near-term

Excerpts from CNBC-TV18’s exclusive interview with Andrew Holland:

Q: Do you think we have a base in place or is it not quite sanguine yet?

A: I was pleased today; the market held its gains albeit it came off the highs. The breadth was a lot better than we had seen for some time. Everyone is still a bit jittery. Oil price remains stubbornly high.

The political arena is a bit better. But nothing has really changed in terms of what we are all thinking and feeling. Investors, whether it is for the Indian market or globally, are playing on the newsflow. But it continues to be negative and will continue to be so in the short-term.

So, expect volatile markets and no one is going to take a bet. It seems that the negative news outweighs the positives at the moment. We had a pretty sharp move back in the last few days. So, consolidation is by no means a bad thing at this stage.

Q: We have come out of an extremely bad June. Is that your sense of what July will throw up-a period of consolidation rather than more weakness?

A: We had a lot of negative news globally as well as for India in June. A lot of analysts have a downgrade forecast both globally and domestically. Global financials have seen more write-downs and expect more write-downs.

As we go forward into the results in July, there could be some more surprises on the negative side. But by and large, we will start to see some realistic valuations and earnings for a lot of companies. I don’t think we are going to be too surprised on the downside. But there will be pockets and areas, which will show that negativity.  

Q: In the last few days, we have not seen too much by way of FII selling. Do you think the continuous spate of FII selling seen in the last couple of months is drying up at the moment? 

A: It could be. It really depends on what the global factors point to in the next few weeks. We have been seeing some selling and redemptions. That has been forcing some of us to be a little bit more aggressive than usual.

We have seen USD 6.5 billion go out this year of which USD 2.5 billion was quite recent. Investors think the rupee would not depreciate as much as it has been doing. Therefore, there is less risk of losing on the currency. Now, these funds are more hedged in terms of market falls as well.

So, this is a bit of a wait and watch situation to see what is going to happen particularly with the oil price. Global markets were looking a bit oversold. Everyone has been expecting a bounce globally, particularly for Asia, which has been having a pretty torrid time recently. That is why we saw the markets move up today. If Wall Street is good tonight, we will see that follow-through again tomorrow.

Q: How have you read the talk of this windfall cess? Do you think institutional investors are a bit nervous about what kind of turns the policy could take in India?

A: Foreign investors have been nervous since the oil prices have been where it is. The pressure is on the government to raise finances and keep inflation under control. So, there is nervousness about the government policy.

The windfall tax has been moved, not only in India but also elsewhere in the world. Two things would add to taking taxes off companies; it is a great short-term win for governments. But you should really be encouraging these companies to actually invest in new oil exploration. That is where the problem lies in the oil supply and not in cutting windfall taxes for governments.

In other countries, it would be difficult to do so because of shareholders opposing it and could take the governments to Court in terms of enforcing those rules. So, I am not so sure if it is a great long-term move. Any negative news and the markets would just jump on top of it.

Q: What is your sense of what lies ahead for global equities? Most markets have corrected and now they are sort of ambling around their lows. Are we ripe for some kind of a technical bounce? Is there another leg down lurking somewhere?

A: In the past two-weeks, we have seeing some kind of bounceback in the markets. I expect that to continue. But the longer higher oil price stays, the more will be the damage on the companies’ profits. My concern, particularly for the US companies, is that one is going to see corporates restructuring their balance sheets.