Jul 02, 2013, 05.10 PM | Source: CNBC-TV18

FII outflows not key worry; Sensex can hit 21700: Nomura

The market had now become reliant on local economic data and news than on US Fed's announcements, believed Prabhat Awasthi of Nomura Financial Advisory and Securities. He also said that the Sensex may touch 21,700.

Prabhat Awasthi of Nomura Financial Advisory and Securities remains positively baised on Indian equities and feels margins in India were changing for the better. He told the CNBC-TV18 that the Indian currency, which tumbled to life time low recently, is unlikely to weaken further and will stabilise going ahead.  Given this, FIIs pulling out money will not be a major cause of concern.

Indian equities outperformed other emerging markets (EMs) in June, but it will start looking attractive after another five-six percent correction from current levels, he said Awasthi added that he not overly bullish on the market, but he continues to maintain the 21,700 Sensex target for this year.

Also read: Ways to enhance investors’ participation in equity market

Below is the edited transcript of his interview to CNBC-TV18.

Q: Hellish kind of June. How are you feeling as the market steps into the next phase? Is the poison of the global issues behind us? Or that could linger in the next few months?

A: Tough to say. But one round of adjustment in the markets in terms of absorbing the news of what Federal Reserve (Fed) has been saying has been done. So, we have seen fair amount of outflows from capital markets including debt and equity.

A large part of it is behind us and the market seems to be getting focused more on back of the domestic news and the news flow rather than just adjusting to a new regime in terms of bond yields in the US and the Fed tapper. So, may be a large part is behind us now. Hopefully, we should move forward from here.

Q: Last couple of months, the Nifty has behaved in a very volatile fashion ranging between that 5500 to 6100. Because of the movement in terms of news flow, would you change your year end target for the markets now?

A: No, we are continuing to stick with it. Firstly, we were not overly bullish. We were looking at Sensex target of 21700, which is not a huge upside but our bias was positive due to the margins in India changing for the better.

So the volatility was essentially caused by external events globally because that Fed came and said what it said. Given the fact that Indian market is more vulnerable to currency because of the current account deficit (CAD) like in the past, we saw volatility.

Volatility is a part of the nature of the game especially when global events change very fast. However in terms of India’s own domestic issues, we have probably seen the worst; not that it is getting out of the woods completely. So, from here our bias will remain positive. But we were not overly bullish to begin with. We are not overly bullish now.

Q: The bigger concern is whether Fed statements have caused a rest in how asset classes are perceived. Does it still make sense to be in EMs versus being in the mother market, the US the way the bond yields have been shooting up and the kind of correction in other asset classes? Has something changed in terms of the way people perceive asset classes? Is there is a complete reset going into the next couple of months?

A: While people might say that this is a new reset, but the market performance is already reflecting in the clear outperformance of developing markets versus developed markets.

Every market trades on its own fundamentals. The global cost of capital is obviously determined by global events. Ultimately, every market and a market like India will trade on its own fundamentals. So the earnings trajectory here in India, the GDP growth, the reform process will be priced in.

In the short-term, changes in cost of capital and perception of capital cost, perception of bond yields in US and their movement will reset the market. From there on the market is driven purely by its own fundamentals.

Look at June for example. India has really outperformed dramatically the other EMs. And the markets, despite fear at 5600, have moved up once some of these fears have moved away.

So, the Indian market won’t continue to underperform. There is a new emerging trend. I personally don't believe in that. There might be resets. But you move past them and move back to the domestic fundamentals.

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