Jitendra Sriram, MD & head of research, HSBC India explains that there has been an increase in interest on the government grappling with the process of announcing and implementation of reform initiatives. While the RBI continues to face stress, Sriram highlights that land acquisition, state pollution norms and local approvals continue to remain road blocks for various projects.
Sriram reveals that he is 'overweight' on DLF in the real estate sector and points out that the fundamentals of telecom show possibilities of improvement. "I expect that the current account deficit (CAD) to peak out and improve going ahead. Realistic pricing on PSU issues to be attractive for investors and the current levels of fiscal deficit are clearly not sustainable," says Sriram on CNBC-TV18. "India clearly remains in focus for investment opportunities by international companies."
The senior analyst estimates that the lower raising of capital by ICICI Bank in the long run is a positive and has a constructive outlook on the stock whose results were in line with expectations.
Below is an edited transcript of the analysis on CNBC-TV18
Q: How do you expect the market to move? Flows have been very strong and supply of paper has started to pick-up once again. Do you expect the market to continue to remain range-bound despite such strong liquidity?
A: In 2012, clearly India accounted for 50 percent of inflow to Asia excepting Japan. And in January so far India garnered close to 80 percent of inflow to Asia excepting Japan. Clearly, a lot of investors are enthused about the kind or reform initiatives that the government has announced and the focus will be on the successful implementation of the initiatives.
From a rerating perspective, I think the easy part was over last year. I would be cautiously optimistic from hereon. Though there is an expected 10-11 percent upside for the market, the market will find it tough to post an encore of last year's superlative performance.
Q: What are the returns or expectations that the Budget Month offers for the market?
A: I am certain about the pick-up in volatility, because the Budget does make the market quite volatile. Investors are keenly watching and waiting for the steps taken by the government to effect a turnaround in investment. During the 2002-2007 period investments as a proportion of the GDP went up from a shade under 30 percent to somewhere almost nudging the 40-percent mark and from that period investments have slowed down.
It needs to see if the policy initiatives would be able cause investment levels to return to healthy levels where it can start to trigger the uptick in GDP growth. A lot of the industrial, capital goods and other sectors could be in the limelight this month.
Q: What has been the response to your India investor conference? How would you react to the criticism, to your fund-raising exercise, that the long-only funds are no longer interested in India?
A: The traditional India-dedicated funds may not have seen too much of inflows, but that does not mean that the funds are predominantly volatile. There are a lot of global macro-funds now flowing into India through passive sources such as exchange-traded funds (ETFs).
The response is clearly impressive as our conference is one of the first forums of the year offering insights to investors as they try to get a grip on the reform initiatives by the government. Investors are also intrigued ever since investments as a proportion of GDP started coming off and consumption-oriented sectors such as staples and durables posted a huge performance.
So, investors are at the crossroads and want to know the effect of investments starting to get that expected leg-up. They are also keen on positioning themselves into 2013.
Q: What do you think investors will make of the new provisioning norms that are being mooted which may actually see many of these non-performing assets show up in the books of many of the banks?
A: The RBI is trying to recognise the stress in the banking sector caused by the nonperforming assets and instituting slightly conservative accounting guidelines is always healthy. Though earnings may hurt a little, it does get buoyed by a certain amount of rerating spirit. So I don't think it is going to have a very material effect on the of valuation of stocks.
Q: What do you make of the first meeting of the Cabinet committee on infrastructure?
A: There needs to be some state participation in the current constitution of the Cabinet committee. The committee might be more effective if it actually has representation from the states as well.
Q: Among the key domestic trends for 2013, it is interesting to note that the possibility of Japanese companies channeling capital investment into India would impact a lot of sectors. Any specific stocks that are on your radar?
A: The trend is clearly visible in the Delhi-Mumbai Infrastructure Corridor (DMIC) and Dedicated Freight Corridor (DFC). Japan is a big capital exporter. Japanese investors are keen on diversification in India into sectors such as power equipment, metro-rail projects and the automotive industry.
Q: Some of the key stocks you are overweight on include ICICI Bank. What do you make of the way the market reacted to the results on Thursday?
A: The results were in line with expectations and we are constructive on the stock from a longer-term perspective. So overall we though the results were quite in line with what we were wanting from the numbers. In my estimate ICICI Bank is unlikely to make frequent cash calls on the core business and the raising of capital from the group over the longer period will be far less infrequent than it was in the last decade..
Q: Oil India is to launch its offer for sale (OFS) today. What kind of appetite do you see at the floor price of Rs 510?
A: We are part of the deal syndicate, so I will not be able to comment on that.