A lot of things are in the pipeline, primary being the US tapering its bond buying programme, which can still upset the markets and turn EMs volatile
Lakshmikant Reddy of ICICI Prudential Life Insurance feels we are not yet out of the volatile phase. He says if one were to look at the underlying reasons why the rupee was volatile, there is still no clarity on it.
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On the banking sector, he says, in terms of fundamentals it makes a lot of sense for any trader with a longer term view, around 1-2 years, to buy into banks considering that for a lot of them valuations are rather depressed.
Below is the verbatim transcript of Lakshmikant Reddy's interview on CNBC-TV18
Q: It has been some really strong days that our market has had and it has been supported by strong data both globally as well as locally like the trade deficit numbers etc – but do you think it is some inflexion point that the market has reached where we have moved out of a bear market rally and into perhaps forming a base for ourselves so that we can built upon?
A: That is the most important question that all the market participants are trying to grapple with. Our own sense is that we are yet to be out of this volatile phase. There has been some sort of a relief rally in equities more particular in those segments of the market that got beaten down a lot. However, if one looks at it the underlying reasons why the rupee was volatile we are not yet clear that get out of it yet.
Couple of data point in the last three days have been positive and supportive of the rupee both on the external front, with the dollar somewhat softening against a basket of currencies as well as the trade data and other things. But the much discussed how the US taper will impact the US dollar and other currencies etc there is a lot that is due in the pipeline over the next 1-2 months, so our own sense is that the market will be in a volatile phase for some time.
The growth forecast has come down from what used to be 5.5 percent about a couple of months back to close to 4 percent returns of consensus for FY14. Beginning of the first week of October, we will start seeing the second quarter results and our own sense is that those results are going to be on the back of last two quarters of nearly flattish corporate earnings, it is going to be somewhat very not necessarily great so that is also going to add to some sort of volatility in the market. Our own sense is that it will be volatile for sometime so whether the bear market rally is over etc that is something the jury is out on that.
Q: What would you do with something like JP Associates purely on the back of this impending deal? Here is a company that was trying to pare off its debt for so long – maybe the valuations may not please many analysts but at a time like this when the economy is in such a bad shape it has or will manage to pare off some of its debt?
A: In addition to the specific company that you mentioned which is trying to pare down the debt by asset sales as a matter I would say almost all of the infrastructure asset company which have raised a lot of capital in the last 4-5 years. Almost all of them are sitting on substantial assets but their market caps are very depressed and many of those companies also have a lot of debt. Paring down the debt to operational cash flows is going to be a long drawn affair and market does not seem to have faith in that.
In all these companies if they show intent to sell some assets to pare down their debt certainly their market cap can increase dramatically. It is not just about the company that you are mentioning but one could look at a lot of companies, companies that own roads, airports. Lot of these companies have very depressed market cap relative to the assets that they own and the paring down assets to pare down the debt is one quick way to release the depressed market cap of these companies.
Q: What about banking names or banking sector as a whole – how would you approach that one after the kind of relief rally that we have seen?
A: Of course, there has been a relief rally but if one sees where the banks have started correcting from and relative to that where they are today they are substantial down. If one looks at a lot of these banks their valuations today are very depressed. It is possible that after this substantial pullback in the last 3-4 trading sessions there could be a cool off but for anybody who has a slightly longer view which is about 1-2 year view basket of these banks which have beaten down quite a bit in the last 3-4 months they really make a very good fundamental sense.