Market is likely to find it tough to sustain upward momentum near term, feels Gautam Chhaochharia of UBS India. Global investors are worried about the rupee, though the weakness has more to do with the appreciation of the dollar against other currencies.
The rupee today hit a record low of 57.54 to the dollar, stoking fears of FIIs cutting exposure to Indian equities.
In an interview with CNBC-TV, Chhaochharia feels that global macro indicators hold the key to near term trend. Locally, he sees government policy and monsoon as the key triggers, and is hopeful of the government speeding up the divestment process.
Chhaochharia expects the RBI to cut repo rate by 25 basis points in its monetary policy review this month, but he is not too sure of further interest rate cuts. RBI governor D Subbarao over the last few days has been repeatedly highlighting risks from high inflation, underscoring the central bank's reluctance to cut interest rates.
Still, he is bullish on banking stocks. IT is the other sector Chhaochharia is positive on, as he sees a recovery in IT spends in the second half of this financial year.
He says FIIs prefer large caps to midcaps, which explains the underperformance of second line shares vis-à-vis their large cap counterparts.
Below is the verbatim transcript of his interview on CNBC-TV18
Q: You guys have been talking about a range of 5400 to 6500 for most of this year. Do you think this current downtrend will lead us back again to those 5500 kind of levels or would you start accumulating here?
A: That is a range which still holds true in our view despite the current earnings estimates, as well as the macro environment. According to our trading desk looking at the global macros, it looks like the near term momentum is weak but fundamentally, there is no change in our view.
So, keeping that in mind around 5,700-5,800 Nifty levels we will definitely start picking and putting in more aggressive positions when we talk to clients.
Q: From your desk what are you guys picking up about flows and how concerned some of the Foreign Institutional Investors (FIIs) are about what has happening with the rupee so far?
A: Flows is a mixed bag, so you keep seeing different flows every day. However, compared to last few months, the flows have been up tad weaker over last couple of weeks. The FIIs continue to be very worried about Indian rupee and in fact that remains a worry for us too. So, despite our positive stance on equities, we have been recommending investors to be cautious on the INR. We have been recommending them to hedge INR wherever possible and wherever cost effective. So the INR part is at the center stage of all FIIs.
According to the FIIs we speak to and our FX desk, this INR move is not just about the Indian part but you have seen a lot of other emerging market currencies specifically those with current account deficits (CAD) or high yielding currencies have also moved similarly. So, it is not in isolation, it is not because of India specific factors but because of the global macro you could see INR remaining under pressure.
For full interview watch videos