The Indian equity market is likely to be volatile until the General Assembly elections are over, says S Naren, ICICI Prudential AMC.
Speaking to CNBC-TV18, Naren says he is betting big on export sector that is likely to have benefited from the recent rupee deprectiation.
Naren also says that the US Federal Reserve decision on tapering hasn’t been hurting the Indian economy, as has been quoted time and again, as much as the ballooning current account deficit (CAD).
“Hence, we still have work to do on reducing our CAD and not worry too much what the Fed will do because right now, maybe the Fed will taper less but finally, at the end of the day, Fed has clearly said they are looking at monetary policy for themselves and not at monetary policy for the world,” he adds.
Below is the edited transcript of Naren’s interview to CNBC-TV18.
Q: Before I come to the fundamentals, we know that we are still grappling with a sub-5 percent gross domestic product (GDP) and yet the markets are running on a different kind of thing, how much can these bear market rallies you think?
A: There are two ways of looking at it. One way of looking at it is that we are at all-time low GDP growth and short-term interest rates are at all-time highs. So, if one takes a medium-term view from here, we are going to see GDP growth being higher and short-term interest rates going to be lower and both will be beneficial for returns.
One could have viewed it as a long-term buying opportunity, but in the short run, we have had this fantastic rally and now we have got a first credit policy on September 20 by the new governor.
It is going to be interesting because we still have our inflation and growth still slowing down. So, are we going to focus on inflation or are we going to focus on growth? Are we going to focus on currency and this is not yet clear today what the new RBI is now going to look at.
Q: Purely on the back of the Fed policy, how much do you think it could drag the markets lower, post the announcement because since May 22, when Ben Bernanke started the taper talk, the market has corrected about 4-5 percent?
A: I don’t think that the Fed policy is something that would help in the near-term, in the long run. It is very evident if one sees countries like Brazil, Indonesia, India. They are the countries which got affected in the last three-four months whereas many of the other emerging markets like China or Korea- these markets didn’t get hurt at all.
Hence, we have to get our economic act together. To believe that all the problems in the last three-four months was because of Fed is not true because it is the current account deficit (CAD), which was the problem- the reason why there was a transmission of a US monetary policy into the Indian markets.
Hence, we still have work to do on reducing our CAD and not worry too much what the Fed will do because right now, maybe the Fed will taper less but finally, at the end of the day, Fed has clearly said they are looking at monetary policy for themselves and not at monetary policy for the world.
Q: Would you term the current rally in market as a bear rally and therefore would you caution that buyers at this juncture are doing so at their own peril?
A: Our market call has been that market will be volatile all the way till election. Market fell much more than we anticipated in August and therefore, the market has rallied more than what we would have anticipated at the end of August.
What we require is for the market to go up to a higher level. We cannot afford to have growth in industrial production being so low. We have had a fantastic monsoon and we will see the benefit of the fantastic monsoon over the course of the next six-nine months. From an economic standpoint, what we have been worried about is the fact that the deposit growth in the banking system has been very low and with the kind of short-term interest rates, which are there in the market, we were expecting a big spike in savings rate and deposit growth in the banking system to rally. What we find is despite such high interest rates on the short side, savings rate doesn’t seem to be picking up and that is our single biggest worry in the market at this point of time.