World economy has been combating liquidity crunch. However, the condition seems to be gradually improving in US with growth in employment, housing data and corporate earnings.
Punita Kumar Sinha, Managing Partner, Pacific Paradigm Advisors feels that the liquidity situation in the US is finally beginning to see through into the broader economy. In an interview to CNBC-TV18, Sinha said that the emerging markets are still considered a good asset class and people are willing to invest.
"Obviously there is short-term concerns but any weakness would create potentially more allocations to this asset class. Right now we are in a situation where there is a tug-of-war between liquidity and the political situation worldwide," she said.
Here is an edited transcript of her comments. Also watch the accompanying videos.
Q: Your thoughts on what is going on with the IT sector. TCS exudes confidence; Infosys has been super circumspect how do you approach the big names now?
A: We have seen mixed results so far and lot of the softness has come from the financial sector and so companies that are exposed to that segment have seen softer results than others. TCS has done exceedingly well and as a sector it seems now it’s going to get more and more company specific because of the different exposures to different geographies and different segments. I think at the moment it seems that the sector itself is not hurting and that is more company specific.
Q: What's also not worked in our favour is the sudden turn in the global environment. How do you read it this confusion over whether there is risk off or risk on and how exactly liquidity is positioning itself towards markets right now?
A: Liquidity is quite plentiful. I find that in US markets and in the US economy the mood is quite optimistic, employment is picking up, the housing data is coming positive and the companies are beginning to do better. So the liquidity situation in the US is finally beginning to see through into the broader economy. Europe is a different issue altogether and this whole liquidity is still positive broadly for emerging markets.
I was in the US recently and I met a bunch of investors. Their view is that emerging markets is still a good asset class to be in, people would still like to allocate. Obviously there is short-term concerns but any weakness would create potentially more allocations to this asset class. Right now we are in a situation where there is a tug-of-war between liquidity and the political situation worldwide.
Globally liquidity is a big concern. In Europe in particularly, either there is backlash as we are seeing (austerity plans) or there is too much political interference or there is too little happening. So we are seeing all of the above and we are seeing that in India as well. We are seeing either too much interference in certain sectors or we are seeing too little happening in others.
Q: There are two other issues which are bothering global investors; one is the confusion on GAAR which the government is trying to address and the other is the currency the way it’s moving with great speed down to 53 mark to the dollar again. How influential do you think are these two factors in determining near term flows?
A: If you look at the currency given where inflation is, inflation is very damaging for the Indian economy. Some people can argue that in longer term, as the Indian GDP grows the rupee would strengthen but because of inflation some people arguing that the rupee is overvalued and has potentially more downside in shorter term .
So a lot depends on capital flows here again, we have seen some of the measures last time around helped the rupee strengthen specially the NRI deposits. I don’t know what other measures can take place because now we have also seen interest rate cut. I think rupee is going to act pretty much inline with what we see in terms of global capital flows to India.
Q: Any thoughts on Indian telecom and how to approach it now given the TRAI recommendations?
A: Earlier this year I had said that I would avoid the sector because as I mentioned earlier the sectors where there is too much political interference or too much government interference or uncertainty of regulation. Telecom seems to be one of those sectors, so given the situation I would continue to avoid the sector.
Q: The Budget session for the Parliament reconvenes today. Are you at all hopeful that there is any headway either in terms of further clarifications on GAAR or finding some consensus with regards to fuel policy?
A: I think there are number of bills that are likely to get tabled in Parliament and I expect that some of them will get passed. The fuel policy it’s a very sensitive issue. If there is any price increase that would be viewed generally very positively by investors but politically it’s quite a sensitive issue and I don’t know where it will net out.
Q: How do you approach some of the PSU companies, just to put them under one umbrella, there has been so much criticism in terms of government policy with regards to them how do you think institutional investors may approach any potential paper that the government hopes to float in the market from PSUs?
A: I think at least from investors in the US there is quite a bit of concern about the interference of government and the corporate governance issues on some of these PSUs. As a result and some of them are going to lobby quite strongly not for investors to invest in those companies and obviously it has to be very sector specific.
If you look at financial sector the PSUs play a big role in that sector and in that sector there is less of a concern of government interference as compared to some of the other sectors in the PSU space so its very sector specific there as well. I would say that especially in the oil and gas sector it’s going to be tough.