While investors are losing confidence on the Indian market, Rajiv Anand, managing director and chief executive officer of Axis Asset Management Company says, there is deep value in this market at this point in time. “If you are a long-term investor, these are opportunities for you to buy high quality stocks into your portfolio,” he adds.
According to him, there is value across all the sectors. “I don’t think you need to be too choosey in terms of a sector pick at this point in time. We think that there are opportunities available pretty much across all the sectors,” he adds.
Below is the edited transcript of his interview with CNBC-TV18's Latha Venkatesh and Ekta Batra. Also watch the accompanying videos.
Q: What is your outlook on the Indian market? Do you think that we are currently working with just global equities in terms of a co-relation or do you think that we are heightened in terms of a risk-off and possible further downside because of our macro situation?
A: I think one needs to be very clear here. The problems that we are facing are all local. The twin deficits, the fiscal and the current account deficits, are two biggest problems. Trying to mitigate the impact of this and blaming this on what’s happening globally is not appropriate.
Because of the fact that you have a large current account deficit and what is happening globally, I think you are seeing an exaggerated situation in the Indian context. But that’s really what risk is all about.
I think policymakers need to understand that we need to control what is controllable. For us, what is controllable is our fisc and current account deficit. There is nothing much that we can do about what’s happening in Europe and Greece at this point in time.
Q: For the past 12 months, we have been getting continuous doses of people marking our macros down as worse. From the start of FY12, where we were still expecting 8% growth, we have seen a consistent downgrading of our growth estimates and of other macros. The process still seems to be underway. Nobody is quite buying the 7.6% on which the Budget is predicated. Even the 7.3% of the Reserve Bank is now increasingly in doubt with data. Do you think that the stock markets might get stuck in a 5,000 or maximum 5,600 kind of range for several years now, over a couple of years maybe investments are not going to make much returns?
A: Clearly to believe that we will grow somewhere in the vicinity of about 7.6%, we are just being too ambitious. Look at it from the perspective of the market. I think the market is still not sure that it has hit a trough. What that trough is? Whether it is 6.5% or 6% or 5.5%, one really doesn’t know.
But I think until one gets the confidence that they have hit a trough, the market is not going to go up in a sustained manner. For us to be able to sort of arrive at that trough, it is about policy, it is about trying to revive growth in the Indian context such that we are able to deliver over a long period of time. I think that’s the uncertainty that the market is playing for over the next 3-12 months.
Q: You said that we can’t really control what is happening in the European Union at this point in time and we can only differentiate ourselves. According to you, how do you think that we can carve this niche for ourselves and differentiate ourselves in terms of the global equity space?
A: I think if foreign institutional investors can live with underperformance within the equity space, that’s really where they are investing in and they do understand from a long-term perspective that the cyclical nature of markets will push some markets up and some markets down at various points in time. But I think what is clearly unacceptable to foreign investors is this huge drop in the rupee that we have seen over the last one year, which is almost 20%. That is by any standards huge.
I think the one thing that we should do is look to control the rupee. One of the things that come to mind is why don’t we do a dollar denominated bond, a USD 10-12 billion dollar denominated bond, 10-15 year maturity that fixes your issues on the rupee into the medium-term, brings in liquidity into the markets. You will then see some semblance of rates coming off as well. I think it then begins to build in a virtuous circle. That will in turn bring back the investment cycle. Therefore, perhaps build a bottom on this economy. I don’t think there is any question about the structural nature of our economy. But the problem is really to get to the long-term, we need the short-term fixes as well.
Q: For a one-year horizon, would you start buying equities now at all?
A: We think that stocks are available to you really cheap. There is deep value in this market at this point in time. If you are a long-term investor, these are opportunities for you to buy high quality stocks into your portfolio.
The issue really is whether those returns will come to you in the next 12 months, 24 months or over the next five years. But I think as an opportunity to buy we are very confident that these are really good times to buy into this market.
Q: 4,800 was attempted in the last 24 hours, what would you say is the near-term trough? Is it somewhere very close to sub-4,800 or could it be a more substantial drop?
A: That’s a difficult one, given the fact that there is so much of volatility in global commodity prices, global currencies and there is so much of volatility in terms of what’s going to happen in Europe and Greece, in particular in a very short-term. Let’s say for example, in the next three months, Greece falls off, we could see a significant knee-jerk reaction in the Indian markets as well. So, let’s leave that out for a moment. But if you are a long-term investor, I do believe that these are indeed excellent times to be buying into.
Q: On May 31, we will get the GDP numbers for Q4. We have the IIP numbers. There was a contraction of 3.5%. The inflation figures disappointed the market. How do you think the RBI is going to move in this year?
A: The risk is really on the downside. So, even the 7.3% looks fairly unachievable at this point in time. However, inflation numbers seem quite sticky and seemed to be quite structural in nature, atleast at a headline level.
On the other side, core inflation seems to be relatively benign. We are seeing indications that pricing power has come off and come off quite sharply in the economy. So, in that context, we do believe that the RBI will probably be on pause for the next couple of quarters to try and assess the situation from a local as well as a global perspective. We do anticipate that perhaps we could get maybe 25-50 bps sometime in the next 12 months.
Q: So, for the one-year investor, debt is a preferred option now? What’s the kind of ratios you all recommend?
A: I think debt continues to be an attractive option primarily just because of the fact that headline numbers, whether you look at fixed deposits or short-term debt, are very attractive. I think what we are recommending is really the short end of the yield curve, liquid funds, short-term bond funds and so on so forth.
I think from a long bond perspective, given the fact that you have such a large borrowing programme that you need to sort of take care of, the range of the 10-year probably is 8.75% on one side and maybe 8-8.25% on the other side. Therefore, your ability to make money from a long bond fund is limited over the next one year relative to the sort of risk that you are taking on. So, we are recommending money market funds and short-term funds for retail investors who are looking at debt.
Q: Once again for the shorter term investor, or maybe a one-year horizon investor, what are the sectors you are buying?
A: If you look at our portfolios, we think that there is value pretty much across all the sectors. I don’t think you need to be too choosey in terms of a sector pick at this point in time. We think that there are opportunities available pretty much across all the sectors.
Q: What is your view on the banks and the earnings that we have seen this quarter?
A: The private banks have been able to manage the slippage on NPLs much better than the PSU banks. We traditionally also had a preference to the more nimble, better managed private sector banks. In that context, our view really doesn’t change.