Export-oriented sectors IT and pharma, which are seen as major beneficiaries of rupee's steep fall, may continue to lead the Indian equity market, says Jitendra Sriram, managing direction and head of research, HSBC India. Speaking to CNBC-TV18, Sriram says that the Q2 earnings are, however, likely to disappoint. He expects about 6-7 percent growth in Sensex Q2 earnings.
On the imminent event of Fed tapering its bonad buying program, Sriram believes that the monetary stimulus will take place in a gradual manner and a vicious sell-off in markets is unlikely.
“I don’t think that in the near-term one could see something vicious happening because from whatever statements have come out so far, it seems to be more a calibrated approach to an unwind. So to that extent, it will be very modular. They will keep on seeing data probably trying to tinker this process of unwind to as smooth a fashion as possible,” he highlights.
Below is the edited transcript of Sriram’s interview to CNBC-TV18.
Q: What is your sense? How will you approach trade over the next 48 hours ahead of tapering?
A: I would expect the US Fed directionally to go for lower bond purchase. This clearly means that one will see the current account deficit (CAD) extending and India is definitely very vulnerable on that count. In fact, within ASEAN markets, India probably has a lowest Fx cover overall within ASEAN. In case there is any kind of bond buying easing coming through from the Fed then we will see capital flows getting stumped a little bit.
Q: Do you think because of all this volatility, this market will continue to be just a traders market and very difficult for investors to put in money at any given point?
A: I would say that it is a little bit like a barbell in that regard. In a sense, we have one section which has done very well and that is the exporter segment. If one looks at it, over the last five years, most of the exporting stocks whether it is in the pharmaceutical or IT services, they all made incredible amounts of money for investors.
But typically these are not the stocks, which most traders tend to own and have probably not ended up participating in the rally. The second half has been the entire domestic facing sectors, which have probably struggled all through this while because of the fact that India’s economy has been decelerating.
To put it in another perspective, whatever the US Fed is doing, it is probably going to lead to a little bit more polarisation in the near-term because one will end up wanting to play DM exposures out of an emerging market. So to that extent, one will probably again end up playing the IT, the healthcare and so on in the near-term.
Q: What are the chances of something vicious happening after the FOMC meet, May 22, June 19 something like that, is a big vicious round of sell off in India possible?
A: I don’t think that in the near-term one could see something vicious happening because from whatever statements have come out so far, it seems to be more a calibrated approach to an unwind. So to that extent, it will be very modular. They will keep on seeing data probably trying to tinker this process of unwind to as smooth a fashion as possible. So, to that extent, I would not expect something like a step function correction or a step function upheaval in the market. Those kind of events are highly unlikely.
It will be more gradual in its overall play out. However, India on its own will probably have earning season being a little bit of a disappointment because we are going through a slowdown phase in the economy and to that extent, I think market is still not grasping what could be the extent of slowdown which comes through in terms of corporate earnings.