Saurabh Mukherjea of Ambit Capital says that many investors feel that the rupee will slide further to 55-56 levels and he also feels that the faith of the investor community in the Indian government has fallen so much that the community feels that the finance minister will not lead in the right way on the GAAR issue.
“If the GAAR issue is clarified in a positive manner then there is a possibility of 5% rally. We expect to see some positive clarification in the second half of next week,” said Mukherjea.
Below is the edited transcript of his interview to CNBC-TV18. Also watch the accompanying video.
Q: What triggered the breach of 200 daily moving average (DMA) with ease?
A: Currently, there are two triggers which led to the fall. First, by looking at the balance of payment situation, many investors feel that the rupee will slide further to 55-56 levels and secondly, the faith of the investor community in the Indian government has fallen so much that the community feels that the finance minister will not lead in the right way on the GAAR issue.
Q: Do you see a scope of 5-7% trigger in the market if the FM comes out with a positive clarification?
A: If the GAAR issue is clarified in a positive manner then there is a possibility of 5% rally. We expect to see some positive clarification in the second half of next week.
Q: If we get stability in the rupee then do you think that will be the first indication of stability in the stock markets? Where are valuations now? Do you think there is a valuation reason sub-5000 for people to enter?
A: The rupee will be a leading indicator in the short term to decide the direction of the market. The rupee will strengthen if there is a positive clarification on GAAR by the finance minister. On valuations, around 30-40% of the free-flowed market cap in our country is in sectors like banks, power, infrastructure, real estate and aviation which are exposed to macro downturn. And that is dragging the market down from a fundamental perspective
If you don’t believe that the power companies will be able to get coal and generate free cash flow, you will not believe that they will ever be able to repay their bank debts and eventually banks will not get their money back which will add pressure on bank valuations. The dynamics is a fundamental concern on rate sensitive’s and cyclical lending sectors which will take a long time to wash away to be dealt with.
Q: Do you think 4600 is not an unlikely level?
A: Short term perspective and dynamics will be driven by GAAR and marginally by oil and long term drivers are the fundamental state of the economy.
Q: ECB indicates that there will be no more stimuli in the near-term; Fed too is sounding hawkish with the economic data. So, the foreigners want to selloff some of the risky assets go back home? Do you think that could be an angle here?
A: On neither side of the Atlantic there is a clarity on QE or LTRO which is pulling commodities back. Secondly, OPEC is saying that they are pumping as much oil as they physically could and they like to see oil price to come down. Thirdly, the deceleration in growth in China will help to pull oil prices down. Those are the three drivers that I can see which are pulling oil down. From an Indian perspective, I hope that slide in oil continues to USD 100.