Ratnesh Kumar, MD and CEO, Standard Chartered Securities believes that worst for India is over atleast in certain aspects like the current account deficit (CAD). According to him, the market is on steadier ground after the better-than-expected July CAD figure and is likely to remain so until the September 17 Fed meet. (Read More)
In an interview to CNBC-TV18 he says increase in investments will act as an antibiotic for the market in the long-term. "The Cabinet Committee on Infrastructure (CCI) has been approving some projects and the market would need to see more of that along with some of those investments actually translating into dollars on the ground," he adds.
Meanwhile, Kumar expects the good run in IT stocks to continue over the next six-12 months.
Below is the verbatim transcript of Ratnesh Kumar's interview on CNBC-TV18
Q: The last couple of days have been quite strong for the markets but although emerging markets like India have stabilised, many market watchers believe that the worst is far from over, what is your sense?
A: Worst, for India, on some of the variables that we were looking at is over in terms of the current account deficit (CAD) and ultimately confidence. Markets respond more to confidence, flows respond more to confidence, investments respond more to confidence.
In the last few weeks at least some of the confidence is coming through that we can get through this period of crisis globally, which in terms of flows indicates getting out of emerging markets into the developed market.
If you see the EPFR data, there is USD 153 billion of fund flows, which have gone into various funds, emerging market funds, developed market funds, equity, debt. Out of that more than USD 160 billion has gone into developed market funds which indicate that emerging market fund as a whole has seen significant outflows and we have had to withstand some of that pain as well but we are beginning to see some amount of turnaround.
If you look at the July CAD number, it was at USD 13 billion versus USD 20 billion in May. The data that might come out will get better and should give us some more confidence before the Fed meet.
Q: Can we have the confidence that 5,200 will not be pierced on the downside?
A: I don’t think the confidence is to that extent on the market level but on the fact that we can take certain measures that may bring the confidence back in the economy, back in the market.
The long-term structural things haven’t sorted but if there is a problem, first you need a painkiller and then we can have a long-term antibiotic course. So right now, we are appreciative of the painkillers that are there and we hope that the antibiotics which are there also work over a longer period of time.
Q: The much awaited fuel price hike hasn’t yet come, what do you think will be considered the start of this antibiotic course?
A: The core thing for India is investments and in most of the economies we never had periods of high growth without strong investment growth. The last data that you saw on investment growth was still negative in the June quarter.
For the year as a whole, it does not look like that is going to get better. So, the long-term antibiotic will revolve around getting some of the investments going and also there is the factor of election due to which it is more practical to unblock some of the existing investments to get them going up and that is where you have seen some movements.
From January, Cabinet Committee on Infrastructure (CCI) has been approving some projects, market would need to see more of that along with some of those investments actually translating into dollars on the ground. This in the long-term will be sort of antibiotic course of getting the investment going.
Q: How far can IT index and frontline stocks go up?
A: If you look at IT today, while the sector has outperformed, about four-five months back, we gave a very strong call to switch from consumers to IT and our view remains that that call is still very good. This is because if you look at IT sector, while it may have outperformed, the valuations are not necessarily in the excess zone and you can get the frontline IT stocks in the mid-teens valuations.
If you also look at IT, while some amount of rupee depreciation might have been built into the forecast, a lot of it is not. So you might have up to 60/USD built into the earnings forecast but not 63-65/USD and what is certainly not built in is the fact that there could be demand recovery, dollar revenues might be getting better. So, earnings forecast itself might go up so the current valuations that are not excessive might look further more attractive and the demand environment might surprise on the positive over the next 12-18 months. So, I would still be positive on IT over the next 6-12 months.