The Budget tabled in the Parliament last week, has given foreign institutional investors good signals on what to expect from the Indian economy, says Shilpa Kumar, MD and CEO, ICICI Securities. Another aspect that FIIs like about the country, is the settling tension from demonetisation, she adds.
This year's Budget was growth oriented and its main aim was to increase the country's tax base, she says. This is going to be looked at positively.
The FIIs eagerly await the monetary policy on February 8, where they expect a rate push to facilitate the economic growth the Budget envisions, says Kumar.
FIIs are currently favouring the fast-moving consumer goods (FMCG) sector, which is expected to gain in the aftermath of demonetisation as spending in the country picks up.
She also likes the Banking, Financial services and Insurance (BFSI) space due to the bottoming out of asset quality issues that have plagued banks.
Below is the verbatim transcript of Shilpa Kumar’s interview to Latha Venkatesh and Sonia Shenoy on CNBC-TV18.
Latha: The markets are celebrating probably your conference with an all-time high for the midcap space and the Nifty Junior. What is the sense you are getting from the investors you may have already spoken with, are they still bullish or is there a valuation discomfort anywhere?
A: I guess one way of looking at the feedback is the quantum of investor interest that we are having at the conference. I must see that in that sense it does look like perfect timing because interest is high, we have a number of investors who are coming in.
Also, in terms of the conversations we are having, I think it certainly looks like there is interest basis the signals that the Budget has given basis how the demonetisation has settled down. So, I think on the back of all this, there is good interest in the country’s stock market.
Sonia: Do you see the FII interest coming back because that is something that was lacking all of last year?
A: When you kind of look at FII interest, I guess you have to also see it against the backdrop of what is happening globally, what is happening in global markets, what is happening to the dollar and then kind of comparing that with what is happening in the Indian stock markets. I think both sides there has been a bit of settling down of the dollar, people though of course are going to closely watch what Present Trump does.
On the other hand, even in India, a lot of the factors which were kind of keeping sentiment in abeyance, a lot of those factors like I said are settling down. So, if you look at the Budget, I think the fact that fiscal discipline has remained a key part of the Budget, the fact that there is a growth orientation, the fact that there is a big effort towards increasing tax base, all of these are things which FIIs are looking at positively.
On top of that if you even look at the next event which is coming through which is the monetary policy, I think that will be closely watched to see if the growth push from the Budget is going to be supported by some kind of a rate push from the Reserve Bank of India (RBI). So, I think overall, yes, there is an interest and hopefully we should see some of that translate.
Latha: We have seen this big rally in the midcap space, what are your investors and the corporates you have met so far for your conference telling you, will this be a stock-pickers market, will you back midcaps?
A: Valuation is always an important part of the conversation and we have at this conference both largecaps and midcaps and I would put it in two parts. I would say a) which are the stocks and which sectors, so, clearly there is a kind of defining sectoral play which underlies how FIIs will respond and within that valuation, so, both will play an important part. So, rather than saying pure midcaps versus largecaps, I would say it is sectoral and it is valuation based, both.
Latha: Which sectors are these?
A: There are some sectors which traditionally will always be areas of interest. One is of course the whole BFSI space given that it is a large component of the market in India. Again, given all the signals that one is seeing in terms of the issues settling down, CASA going up, potential bottoming out of the asset quality issues, so, that of course stays upfront.
The second is FMCG because clearly spending expected to come back. December results were good, but spending expected to come back into the FMCG space. So, that remains another sector of interest.
Then there are areas which are being looked at more from a medium to long term perspective. So, more in the sense of second round effects what will happen, so, I guess that is a different bucket into which there is interest.