Don't worry! You've not missed out on the mkt rally: HSBC

Excerpts from Closing Bell on CNBC-TV18 Watch the full show » ALSO READ See what other FIIs are saying about the markets See what other experts are saying about markets See what Udayan Mukherjee is saying about the markets Nifty BSE | NSE 31/05/12 Are Mutual Funds betting on Nifty?

In an interview with CNBC-TV18, Rakesh Patel, MD & Head of Equity Sales and Sales-Trading, HSBC, spoke about his reading of the market and his outlook. 

Below is an edited transcript of the interview. Also watch the attached video.

Q: We have already seen close to about 15% rall  y in the markets so far. How much more do you think the equity markets can go in the medium-term?

A: I am bullish. I am bullish for several reasons. In particular, I think global liquidity remains extremely strong. I think ECB also will be the same way. Investors, we speak to at the conference this week, are also very cashed up. So, hedge funds are 30-40% cashed up, mutual funds are 3-4% cashed up. There is certainly cash on the sidelines.

As the market carries on rallying, people will be forced to get involved in the market and start to invest more.

Q: We get this feeling in the market, this kind of left out feeling that investors have. Do you think it is still a good time to pump in capital into the market for the investor fraternity or do you think most of them have missed the bus?

A: I think it's still at the early stages. We have had only about a months worth of rally, only the last couple of weeks have been on volume. I think there is still further to go. In terms of emerging market, and also India specifically, emerging markets clearly will benefit from cheap dollars. In addition, the whole of Asia, including India, you have got a peaking of inflation and therefore peaking of interest rates.

There is also monetary policy both from China through to India gets easier and that certainly makes it easier for investors to go and invest. The valuations are not overstretched, so China on 8 times earnings, India on 12 times are not supper cheap, but it's certainly got some value there. So, there are reasons to get involved.

For India specific, and I think our clients were telling me at the conference this week, that there are still a few concerns about corruption. Obviously the 2G issue yesterday, we have got the election happening as well, so some reasons there to be a little bit cautious. However, overall for the medium-term certainly I remain bullish on the markets. There is certainly more upside from here.

Q: What's the view that you get from all the investors that you are speaking to at the conference? How does India fare in their return portfolio versus the other emerging market countries?

A: India has been a bit neglected from a foreign investor standpoint. Obviously performance last year was extremely week. Customers have actually got burnt on the back of that, so they have been a bit wary coming into the year. But looking at the attendance at the conference, I think we have had interest now from foreigners that are underweight in India. The markets have obviously jumped, so being underweight has not really helped them.

So, certainly they are taking the emerging markets and India a bit more seriously. There is some cautious optimism out there, so in the sense that we do have to get through the elections and we need some results to come through there positively. So, what people are hoping for from the foreign community is that the government gets a mandate from the people to go and encourage more reforms.

The foreigners would like to see more reforms coming through, whether it is the teleco space, retail space etc. If we see that, people will be more encouraged. We had some positive comments from the Deputy Governor of the RBI this morning, talk about rates possibly going lower from here. That adds to liquidity.

We need to see some more noises both from the political side and reform side and also from the RBI side. And if those comments are positive and supportive, I think they are going to take the markets more seriously for this year.

Q: So, do you see the FIIs reversing their underweight stance on India and increasing the weightage that they give to India in their portfolio?

A: It's a challenge because if you are an international investor and you want to invest in emerging markets, you have a wide choice. It could be India. It could China. It could be Brazil etc. India is not the cheapest market. Things like Russia are on 5 times earnings, Brazil is on 8 times earnings etc. So, India is certainly more expensive and I think it has to earn that premium to some degree. For foreigners to get involved into India in a more aggressive fashion, we are going to need the political environment to be a bit more accommodating and certainly a bit more on the inflation front in terms of inflation coming down. Certainly, India is a good place to put your money particularly as foreigners have got cash and they are being financed by cheap dollars.