Sudden tightening of liquidity that makes investor Ramesh Damani cautious on the index, though he says there are plenty of investment opportunities elsewhere.
Investor Ramesh Damani says it is hard to be wildly optimistic on the market, given the current macro-economic scenario. In a free-wheeling chat with moneycontrol.com, Damani says it is the rupee that he is most worried about.
"For the next 6 months to one year, I am scared about the rupee. It is even scarier when you go into the details of the current account," Damani said.
The rupee hit a record low of 61.21 to the dollar last week, and is down about 8 percent so far this calendar. This has caused India’s oil import bill to climb at a much faster rate than the increase in global crude prices.
According to rating agency Crisil, corporate India had forex debt outstanding of over USD 200 billion as of March 2013, of which close to 45 percent is short-term debt. Also, barely half of this exposure is hedged. Even exporters, especially IT companies, may not gain much from the slide in the rupee, as clients are most likely to renegotiate contracts, Crisil said in its report last week.
It is sudden tightening of liquidity that makes Damani cautious on the index, though he says there are plenty of investment opportunities elsewhere. "The hallmark of emerging markets since 2003 has been liquidity; money was cheap, growth was good and valuations were attractive. You now have a scenario where money is slowly getting tighter, growth is coming at a price, and valuations are no longer cheap," he said.
He adds that India is in a high interest rate regime and that makes things even tougher. "The chances of a blow-up rally are slim, but I don’t see the market collapsing either," Damani says.
Last month, US Fed chairman Ben Bernanke’s statement saying he was considering a phased withdrawal of monetary stimulus (bond-buying programme) sparked a sell-off in financial and commodity markets globally. Some of that damage was repaired last week when he talked about continuing the bond purchases, which has been injecting liquidity beyond the US economy.
But Damani says there are pockets of the market where you can still find good stocks at reasonable valuations. He is focusing on the Rs 500-1000 crore market cap segment, in the technology, pharma and FMCG space.
And while he is gloomy on the market as a whole, he advises investors to keep accumulating stocks they are convinced about. "If you had a basket of good FMCG and pharma names, you are sitting on a tidy pile of profit. It is as if the bear market never happened," Damani says, adding that it is a stock picker’s market and they will benefit the most when market sentiment changes for the better.
And Damani is still bullish on the FMCG sector, despite concerns of expensive valuations and slowing topline growth. "The majority view is that FMCG is overpriced and it will not give good returns from here. I disagree. They still offer you safety in this market; FMCG stocks will compound even from here though the rate could be a bit slower than what you have seen in the last couple of years," Damani says.
The S&P FMCG Sensex today hit a 52-week high of 6980 in early trade. Over the last one year, it has risen 42 percent, compared to a 16 percent rise in the Sensex.