RBI, Fed meet key to mkts trading ahead: Lotus AM

Ajay Bagga, CEO, Lotus Asset Management, said the April 29 Credit Policy and the Fed meet could give direction to the markets. “The biggest possibility right now is of a rate hike in India, and of a rate cut in the US.”

Excerpts from CNBC-TV18’s exclusive interview with Ajay Bagga:

Q: Can May build on the good work or the base building of April, or you are not so confident?

A: Two very big news flows will come in -- our domestic policy and the Fed move – which will give direction to the markets. The biggest possibility right now is of a rate hike in India, and of a rate cut in the US. After that only we could take some further analysis of the market.

Overall, there has been USD 290 billion write-offs that have happened, and nearly USD 200 billion of capital raising by international financial institutions. If the numbers meet expectations, no matter if it’s 50% YoY deterioration, we are still seeing stocks going up 5-6%.

So, clearly it is a market which is news flow driven, very volatile, and probably in some sections a hugely oversold market. Even on such grim write-offs, we saw stocks recovering strongly in some markets.

But the overall picture remains quite gloomy with the kind of housing write-offs that are coming through, the overall write-offs, unemployment has been going up three months in a row in the US, and housing starts going down. Overall, inflation and commodity prices remain a big cause for concern. If the US consumption stops growing then there is a very strong correlation with world trade and exporters, and then you have this kind of a financial contagion spreading around the world.

Today, the German confidence numbers came in at a two-years low, French numbers at 16-year low. So, you are seeing coincidental indicators already looking very recessionary. It is not looking that good going into May. But markets are leading, and if the government numbers of the US, which they are saying they are expecting or looking at a bounce back, then markets could be up in May as well. But we are very cautious and concerned about the fundamental picture.

Q: Today, ACC and Maruti sold off after the numbers. How have you read earnings, are they inline, better or lower than expectations, how would you classify it?

A: I would say they are largely inline. There have been no major negatives except a couple. But the disappointment has been there. There have been no major positives unlike the last 12-16 quarters, where we would really see a lot of positives coming and earnings would get re-rated upwards post the earnings season. We have not seen that.

The guidances are pointing towards a slowdown in earnings. So, that way they have been disappointing. Actual numbers have been largely in line for the Indian markets.

Q: What is your sense of how to play IT? It has been a bit of a mixed bag, TCS has soured the pitch a little bit, Infosys was hopeful, do you have a sense of how to play it from here?

A: If you look at the regional IT stocks yesterday, Acer numbers also in Taiwan were very strong. We have seen even the US techs really giving out good numbers. But on the India story, which is largely the offshoring story, there is a lot of hope that offshoring will pickup. We have seen the NASSCOM statements. We are not that convinced. We think it is better to stay on the sidelines and not enter IT. At least give it two more quarters and get some more visibility. Right now, the managements are giving a hockey stick with weak near quarters and going up in the last two quarters. A lot of it contingent on a US recovery which we are not very convinced about. We think the real economy has to really reflect all the bad news that is going through. So, we would be on the sidelines and not really getting into technology for now.

For more Mutual Fund Interviews click here