Budget season is coming closer and now the experts analysis the market from now to then. In an interview to CNBC-TV18, Ajay Bagga, Head of Private Wealth Management at Deutsche Bank says, "There has been a sustained effort by the government to address global investor's concerns. The market is going up, as there are lots of inflows coming in".
As global growth picks up in the developed markets in 2014, he expects 80 per cent of global growth from emerging markets (EMs) . He also sees India getting a fair share and says, "five per cent of global growth this year is coming from the Indian growth itself".
Below is the edited transcript of his interview to CNBC-TV18
Q: How do you see the market between now and the Budget?
A: There are lots of good flows coming in. That is causing the market to go up. There has been a sustained effort by the government to address global investor’s concerns. In fact today the finance minister is in Frankfurt, an event where Deutsche Bank is also involved. There he is meeting global investors.
So, that reassurance and the expectations settings that have happened over the last week with his visits across Asia, is going to boost the market from here through to the Budget.
Q: Are you getting the sense in gatherings such as these for institutional investors that this is a fundamental or long call on India or is it basically tactical right now the call they are taking on India and perhaps the region?
A: It is a long-term call. That story has been fairly consistent that despite the short-term issues the long-term story stays pretty strong, the growth is there. Overall if one looks at this year, we are expecting 80 per cent of global growth from emerging markets (EMs).
As global growth picks up in the developed markets in 2014, we are still expecting 75 per cent of global growth to be contributed by EMs. China of course will be the biggest contributor, but India is pretty high as well. So, five per cent of global growth this year is coming from the Indian growth story itself.
We are seeing India getting a fair share. We saw very good inflows last year and we are confident that could be surpassed this year as well. Looking at the first three weeks, it has been pretty confidence boosting on that front.
Q: What is your call for the February- March period with earnings getting rapped up and the Budget? Are you in the camp that believes the market is headed for new highs and the best part of the year is now?
A: Yes, I think so. Overall our EPS estimate for FY13 is about 1221 and going to about 1430 by FY14. That is a 16 per cent growth. So, Deutsche Equity’s estimate for the year end is 22500. However, my personal opinion would be that will probably take it out much sooner than December.
Q: How much can the RBI do for the market? What are your expectations from tomorrows meeting?
A: As somebody taking the rates, we would be very happy to get higher than 25 bps. However, given all the constraints that the monetary policy is under and the insistence that fiscal policy follow-up the pronouncements with actual action on the ground I think, we would be very happy to take 25 bps.
Markets have factored, one could see some amount of selling in the interest rate segments based on 25 bps flowing through. If it is 50 bps then it is hugely bullish. We would be very happy to see that, but our estimate is more towards a 25 bps now. 25 bps in March and continuing for the next including these policy. Next four policies could probably see a 100 bps cut within this year.
Q: The bond yield is at 7.88 this morning. If we do get 25 bps, where do you see it heading? How do you see the Bank Nifty reacting if tomorrow 25 bps is delivered?
A: There would be some amount of sell-off. The market has factored in these prices. Sometime in the first week we were seeing more of 50 bps bullishness in the bond markets. That has tempered down. Still one would see the 10 year going up in terms of yields. So, the bond price falls tomorrow, post the 25 bps announcement.
A lot of course will depend on the policy statement. Remember in December RBI said the balance is shifting towards growth. However, we are still perturbed about the inflation. We have seen Wholesale Price Index (WPI) and the core inflation going down. So, if there is some relief on that end then markets will front end that. Overall we see flat to mildly negative markets tomorrow.
Q: How are you approaching oil and gas now and which leg would you prefer to play from there?
A: Oil and gas will benefit. We have seen the policy pronouncements, if this is followed through like diesel price hike for the next 12 months by Rs 0.50 per month. All that will reduce.
Our estimate is subsidy burden could go down from Rs 23000 to 25000 crore. So, that will help the downstream oil companies. However, overall we are bullish on oil and gas. It’s because beneficiaries of the government larges on the policy front or even some benefits flowing through.
Oil and gas, banking and infrastructure sectors would benefit in the first two quarters, in terms of government policy coming through strongly.
Q: Do you think enough is done on technology or funds could still be pulling into these names?
A: I think they would still be pulling. Technology would be a more global recovery play. Also the weak rupee is helping. So, combination of those two and including an increase in the technology spends that we are seeing new clients. For multiple years, due to crisis there has been under spending, so we expect some bounce back in spending. IT remains a strongly favored sector.
Q: How do you see the banks doing now given the results that you have seen so far from private and public sector?
A: With the rate cutting cycle banks will be beneficiaries. Second as the economy’s growth picks up banks will be the first leading beneficiaries. We expect this year to come in at 5.5 percent growth in the economy for FY13 going up to 6.5 percent for FY14. So banks will be the leading beneficiaries, we remain bullish on the banking sector.
Q: What is the call on infrastructure for you and how did you read the Larsen and Toubro (L&T) numbers?
A: Infrastructure will benefit because there is a small window now available where we see policy action will get accelerated. There is focused attention by the policy makers on removing the bottlenecks in decision making, accelerating decision making. That will help the infrastructure sector a lot so we are bullish on that sector for this year.