Continuously spiraling rupee, escalating Brent price, rising interest rates and sluggish growth are ingredients for a perfect storm, Vikas Khemani, Executive VP & Head - Institutional Equities, Edelweiss Securities.
“Whatever could wrong for the market has gone wrong whether it is in our control or not
Only strong measures from government to deal with these problems can reverse FII sentiment towards India, but that is unlikely to happen in a hurry. So, market participants who have been in the market for a long time hoping for things to improve are taking some money off and creating some cash, he added.
Below is the edited transcript of Vikas Khemani’s interview with CNBC-TV18
Q: Yesterday we had institutional favourite stocks like HDFC and HDFC Bank falling close to 10 percent and today that has continued. Since you head the institutional desk and talk to a lot of these institutions, what exactly is happening? Is there a bit of a panic situation and a bit of a give-up on India?
A: There is capitulation happening, we have seen some FIIs selling some large cap names. In this kind of a situation, you end up selling what you could sell. Stocks like HDFC and HDFC Bank are most liquid large cap names. They could be sold easily with the price impact. So, we have been seeing some FIIs who either got redemption pressure or want to create cash sensing further deterioration and are taking some money off the table.
It looks like we are in a perfect storm right now. Rupee is definitely in a free fall mood, it is not stopping and government is ineffective of that. Oil is hitting highs, which is a big problem for India. Interest rates are going up and growth is slowing down, so whatever possibly could go wrong seems to be going wrong whether it is in our control or not.
In that sense, it is a perfect storm hitting India. We need strong measures for any FII mood to be reversed, which is unlikely to happen in a hurry. That is the reason people who have been in the market for long and hoping that things will improve are taking some money off and creating some cash.
Q: We have got USD 12 billion from FIIs this year, about half a billion has gone out over the last 10 days or so. Going forward do you see the possibility of may be USD 2-3 billion going out and does this market have the ability to absorb that kind of selling?
A: It is about the economy and the market is only a reflection of the economy. Government has to be worried about economy, what will be the economic implications of whatever is happening on a macro basis and the cost of that is very severe. If it continues to remain like this, we might see wide scale systemic problems getting created, accentuated further.
These need to get stalled here and some concrete measures should be taken. I know in an election year it is difficult to take such decisions, but it needs to be taken. I am sure they have been working on it, but so far it has been ineffective. It is difficult to say what actions they would take to improve the market from here. But it is not about focus on the market, it is about focus on the economy and economic factors which has a lot more implications.