US eco to set mkt trend in H2: Lotus AMC

Q: What sense do you have of flows from here? We have seen quite a bit of outflows happening from the FII front. In your conversations with people, do you see those outflows drying up in the near-term or persisting?

 A: Yesterday or the last three-four days, the big names were the sellers in our markets and in most Asian markets as well. We expect that to continue and we are not seeing any triggers for further inflows. The rupee-dollar expectation is really playing on people’s minds; not on very long-term pension fund type of investors. But the others are saying we might as well hold on in India. We have to look at September’s forecast and then we will always find a level to comeback. So, we are not seeing people in a hurry to really increase commitments.

In terms of outflows, USD 4 billion has gone off already year-to-date; will that stem or continue is the question. A lot will depend on the health of the global economy. For India, it’s little grim given the political and our economic situation. People could be going easy on the country-risk part and will stay on the sidelines rather than stay invested. But luckily we have a very strong F&O market; so we are seeing the shorts build up. People have bought a lot of protection there and that could mean that the cash side may not see that big sell-off going ahead. It will be unlike a lot of the emerging markets or even the frontier markets where there are not developed derivatives segment. 

 Q: The mutual funds have ridden this period of uncertainty but there hasn’t been any serious redemption. What are you picking on that front? Are you hearing of any sort of increased nervousness and what exactly is happening with all that New Funds Offers (NFO) money that was picked up earlier?

 A: Largely not invested yet. If you see the mutual fund numbers, they have been at about USD 1.3-1.4 billion year-to-date. That’s a very small number in the phase of USD four billion - FII redemption.

In terms of flows, January saw Rs 16,000 crore net inflows, February was Rs 6,000 crore net inflows, March went on to about Rs 4,500 crore, April saw about Rs 600 crore only of net inflows. Redemptions were there in April and in May - we saw about Rs 1,100 crore of net inflows. So, mutual funds were largely flat; the good news of course being that the redemptions have not happened. There are about 40 lakh transactions happening in the equity mutual funds but that’s largely driven by the 30 lakh odd Systematic Investment Plans (SIPs) that are existing. So, overall flows have dried up as we have seen even in the secondary market.  

Even at this rate, we are now more than USD 4 per gallon. So, we have reached US prices on petrol but even at this rate, if we look at the under-recoveries, there is a huge fiscal overhang in the economy. That itself constraints the policy options available, you are going to see an interest rate hike and you need to dump down and dampen the economy even more and hopefully get down the demand for these commodities. But overall policy options very limited.