The mood for the Indian market among foreign institutional investors has improved quite dramatically, Udayan Mukherjee, managing editor, CNBC-TV18 said.
According to him, correction in crude and gold prices has brought India back on the global radar. The fall in commodity prices will ease the current account deficit, which is a major concern.
"India is on the radar, people would like the comfort in seeing crude in double digits to be able to put more money to work out here but in sharp contrast to how people were looking at emerging markets in general. India in the months of January, February, March, it is fair to say that India has come back into the frame somewhat,” he added.
Meanwhile, he expects Nifty to hover in 5,850-6,100 range for the next few weeks if all cues in global markets remain stable.
Below is the verbatim transcript of Udayan Mukherjee’s view on CNBC-TV18
FII view on India
The mood on India from the people that I have spoken to so far has improved quite dramatically. Just a few weeks back and India was not on the radar of many large global European investors. However, that one week where crude and gold collapsed, that is when India came back on the radar of a lot of people. Now, people are saying that if commodities do keep their head down and it is a big ‘if’ because over the last 2-3 days that is what a lot of investors are trying to grapple with on, whether this current risk-off, this hope that things are improving on the margin after the jobless claims numbers in the US over the weekend is leading to some optimism in commodities again.
Copper has bounced back, crude has come back to USD 105 per barrel and that is not typically a scenario, which people will like about investing in India. So the good India scenario which was playing out for a lot of people was that commodities are coming down which addresses the current account deficit (CAD) and to an extent the rupee. In a situation of macro stability, one can go about buying some good quality Indian stocks that have not gone away.
People believe that the Indian opportunities are beginning to open up and look a bit better right now, but they are watching commodities very closely once again because they did not get as much dovish tone from the Reserve Bank of India (RBI) as they might have expected.
Putting some of these things together, India is on the radar, people would like the comfort in seeing crude in double digits to be able to put more money to work out here but in sharp contrast to how people were looking at emerging markets in general. India in the months of January, February, March, it is fair to say that India has come back into the frame somewhat.
What global investors made of RBI policy
On the central bank disappointment, I do not think it is a big deal. People would have liked to see a little bit more dovish tone from the RBI because this time they have some good things to play with. Since the RBI is still sounding very hawkish, it seems they are doing these rate cuts quite reluctantly and maybe they will move a couple of times over the next 10 or 12 months but that is not material enough as a trigger for the stock market.
However, what I do not think a lot of people are saying that because the central bank is not very dovish, that weakens the India case substantially. The India problems are much more to do with whether growth will revive significantly because they have taken the RBI's sub 6 percent growth target on board as well.
So, a lot of investors are not very sanguine about whether growth will pick up as substantially this year or as substantially as the government believes. This leads to a lot faster acceleration of earnings and limitation of earnings downgrades during the next few quarter. People are still hesitant on that, but I do not think the RBI monetary easing cycle is the reason why they are coming to India once again.
Maybe a slight touch of disappointment and therefore robbing major firepower for the rate sensitives in the near term, but the bigger macro picture is what a lot of the global investors are playing for.
Investors and global markets
What will happen with global growth, it is a billion dollar question. In the last few days, people are getting a little more hopeful that things are on the mend and there will not be a big summer correction in the global equity markets this time around. That hope has come back, but this is scaring me because people I speak to seem very confident, infact bordering on complacent about global market.
Last year, there was so much fear all around and that is why equity markets did very well, everybody was prepared for things to go wrong in the global equity markets, Europe was a big risk last year, people were talking about lot of other scenarios that could go wrong and within that fearful kind of situation where people were positioned bearishly, stock markets did very well.
This time people are quite confident. Europe is going to simmer, but will not rock markets, China is slowing down but it is a manageable risk, look at how well the US is doing, look at what is happening with Japan and therefore the global equity piece is very stable.
I hope that is the way it plays out this year but too many people are expecting it and are therefore not positioned for a lot of bearishness. It is not like people are hugely bullishly positioned in Indian equities, but compared to last year, I do sense complacence and that remains the central risk.
For now things are going well, but if in the next few months or weeks that optimism begins to fade or some of these risks begin to pop up, that is when India could get hurt along with other global markets because risk-off then will be back. It is not visible right now but these ugly things have a habit of rearing their heads when you least expect them.
India's FII inflows
Given the uncertainties in terms of elections maybe a couple of quarters down the line, most of the investors would like to see macro stability. The thing which is working most in favour of India is that many of these investors are feeling easier about the foreign exchange situation. In the last couple of years whatever money global investors have made in the Indian market has been taken away by the weakness in the rupee.
So, the commodity collapse, because of the few deals that were announced over the last few days, Unilever, a little bit more confidence in the rupee has come back, the rupee is going to 50 next week but at least these people seem to believe that the rupee has a reasonable chance of floating in a 53-54 kind of a band and would like to see it to stay in that narrow range, they don’t have the sudden 4-5 percent bouts of depreciation which knocks the stuffing out of their portfolio returns.
A part of the India story is also currency stability and hopes of that because of the recent events and has gone down fairly well with the global investors. So for the moment, if the world stays in global risk-on kind of mode, India gets its share of the pie as it has over the last few days and you will get to see if not outperformance from India because commodities are bouncing bank but general performance in line with other global markets and that is the hope.
Levels to watch out for Nifty
Right now the RBI policy did not quite play out along expected line and that has been a bit of a setback for our market and coming as it did after a 10 percent rally on the Nifty, markets need to consolidate right now.
At another time when global markets were not so supportive, I would have imagined that Nifty would have corrected far more significantly than it did after the policy disappointment. But right now there is a complete mood of risk-on in global market. People do not want to abandon equities per say and we do have some liquidity support. So if crude continues to trade above USD 105 per barrel and given we did not get what we wanted from RBI, the case for India outperforming in the near-term is not very strong. But it can remain a bit of a performer in line with other global equity markets.
The Nifty might drift down on bad days to 5,850 kind of levels. On the way up along with the global markets, 6,100 is the high for the year which it still needs to take out. The moment it gets there and maybe journeys beyond that, the valuations in many cases will begin to look difficult.
It is good that in the last few days, IT spurred on by the good global mood has started performing once again and so some of these clusters like IT are picking up some of the slack of the rate sensitives. But 6,100 remains a level to conquer for the Nifty. If all other things in the global markets remain equal, maybe the Nifty for the next few weeks stays in this 5,850-6,100 kind of zone and then depending on the global outcome, we will talk about how things pan out for the second half of the May series.