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May 06, 2013, 05.03 PM IST | Source: CNBC-TV18

India's growth may lift in H2FY14; bet on oil & gas: Sanger

The US market is getting some confidence from the strong earnings reported by many key companies there. The macro economic fundamentals of the companies are strong and 70 percent of the companies have beaten expectation.

The US market is getting some confidence from the strong earnings reported by many key companies there. The macro economic fundamentals of the companies are strong and 70 percent of the companies have beaten expectation.

"Though economic fundamentals in the US may be moderating a bit, they do not seem to be rolling over to where people are afraid that the growth is going away," believes Arvind Sanger of Geosphere Capital Management.

Also read: China HSBC Apr services PMI falls to lowest in nearly 2 yrs

Meanwhile, the earnings season in India has been a mixed bag, but it has been more good than bad, so far. Also, European Central Bank (ECB) cutting interest rates last week, provided some push to the liquidity looking for risk assets, which is benefiting the Indian market, he pointed out.

If the risk-on trade remains, then India may see pick-up in growth in the second half of the year, but negatives like high inflation and uncertainty on the political front will remain key challenges, he elaborated.

"Passage of any further meaningful bills looks difficult, recovery may be moderate, but one will have to watch monsoon to know how inflation pans for the rest of year. So, there are lots of unknowns. Growth in India will not come roaring come. There could be upside bias to the market, but these factors may prevent the market from rallying."

On sectors, Sanger remains bullish on oil and gas space.

Below is the edited transcript of Sanger's interview to CNBC-TV18.

Q: There has been fantastic leadership from the US markets. What have you made of it? Are people calling for a bit of a halt or is this one headed higher?

A: The popular wisdom is that you sell in May and go away. However, atleast this time, in the first few days of May, the market after looking like it might be rolling over, has rebounded. A part of what has helped is the earnings season that has turned out to be overall reasonably good.

Almost 70 percent of the companies have beaten earnings expectation. This earnings season has provided some confidence. Some of the data recently has been mixed, but overall the market is taking heart in the fact that the companies are doing a good job in terms of generating earnings. The economic fundamentals are moderating a little bit, but they do not seem to be rolling over to where people are afraid that the growth is going away.

Q: It is important because it is tying in with some great flows for other markets including us. Do you expect that to continue? What would you expect the tactical direction to be for markets such as us given this global backdrop?

A: That is a difficult one to call, because clearly, the best returns are being had in markets like the US and Japan where risk-on and central bankers’ liquidity injections and growth expectations; particularly in Japan, are coming back from the dead after a long time. So, those have been some of the best performing markets. However, as both Japan and US have had a pretty good run, investors are looking at the laggards and therefore one has had a bit of a rally in markets like India.

The earnings season in India has been mixed bag, but moderately it is better on many other market leaders and that has helped. There is a certain amount of risk-off. Liquidity is around. We saw European Central Bank (ECB) cut interest rates last week. It was not anything dramatic, but it just continues to provide backdrops for liquidity looking for risk assets. Therefore, India is benefitting from that.

Q: How do you stack up the developed markets versus emerging markets performance as we head into the second half of the year?

A: If the risk-on trade remains, which I think it should, if one starts to see some of the emerging markets show better growth, the growth in the US may moderate a little bit over the next couple of quarters. On the other hand, emerging markets like India may see moderate improvement in growth in the second half, from what is likely to be trough levels over the last couple of quarters. So, if that plays out and there is not any major geopolitical surprise on global basis or in India, then one could see a little bit of a catch up if not outperformance by some emerging markets.

Clearly, China has been one of the biggest laggards and their growth is a lot more uncertain, so I would not paint all emerging markets with one brush. It is going to be country by country and it is going to be bottom-up company growth and top down macro GDP growth which will be drivers for each country and right now, it is not a one size fits all. It is going to depend on specific country and companies or sectors within that country.

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READ MORE ON  Arvind Sanger, India, growth, US, earnings

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