Macro concerns are key triggers behind the recent market fall, believes portfolio manager PN Vijay.
He says people are very worried about the country’s worsening current account deficit (CAD), flagging gross domestic product (GDP) growth and the negative index of industrial production (IIP). He feels the market badly needs some good news, which ideally should be a turnaround in the macro story for India to participate in the global rally.
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Here is the edited transcript of Vijay’s interview with CNBC-TV18
Q: Just wanted to run you through support levels of 5,500 smashed, very high volumes on the sell side, and reversal of U-shaped curve as far as the trading action went. Essentially what is the story here? Is it earnings nervousness or are there macro concerns working as well?
A: It is mainly macro concerns. I am not a chartist so I will not be able to say exactly what the levels are, but people are very worried about current account deficit, gross domestic product (GDP) growth and the negative index of industrial production (IIP) growth, so we badly need some good news. Maybe a lower inflation figure when we get it on Thursday or something like that will buck up people’s sentiment because the earnings are expected to be tepid. Q4 earnings at best would be just okay, because the macros are showing that. So, you need some turnaround in the macro story if India has to participate in the global rally in equity.
Q: As you said macro concerns are going to persist and earnings are also expected to be tepid. So, do you expect this bearishness to continue at least in the near-term for now?
A: There is great appreciation of what India has done to structurally improve the situation. The fiscal deficit coming back at 5.2 percent and some probability that it can be even 5 percent, you have to start somewhere. You have got a bad current account deficit, a bad fiscal deficit and high inflation. Something has been done. The Reserve Bank of India (RBI) has cut rate, the government has kept up its promise of keeping the fisc down, so that has to peter through to better growth, better consumption demand, better investment, etc.
People would be watching the pace of that. I think there is a fair amount of optimism that India is doing the right things at last in the last 4-5 months but until that gets translated into actual numbers you see some improvement in the macros, I don’t see big money coming in.
Q: Any expectations on the earnings front, you said likely to be tepid but there is of course Infosys down about 2.5 percent going into its numbers so what is your call as far as earnings season goes this time?
A: IT had gone up a lot in this slightly bearish market and IT is correcting, other stocks have corrected more. I am still quite optimistic that the IT majors will deliver and I personally feel we might get some very strong out performance on the private banks. Due to various events the private banks have been beaten down and the worst of the non-performing assets (NPA) are surely behind them, I am not so sure about the public sector banks. So, we may get some positive surprises and auto we may have some negative surprises and IT would be probably par for the course.