Mar 04, 2013, 02.08 PM | Source: CNBC-TV18
Arvind Sanger of Geosphere Capital Management believes India overshot on the upside in early 2013, egged on by euphoria around possible policy actions.
Arvind Sanger (more)
Founder & Managing Partner, Geosphere Capital Management | Capital Expertise: Equity - Fundamental
Sanger feels weak earnings growth and inflation remain the key concerns for the Indian economy. "The government is raising diesel and fuel prices. It does reduce, somewhat, the subsidy burden but it causes some inflationary pressure. It hurts consumer demand because you are switching from burdening the government to burdening the consumers. So consumer demand is slowing down," he explains.
Sanger says the Indian market could continue to drift sideways to lower in a global risk off. "I don’t see a big crash coming, but for the bull story to resume, you need to see some good news," he says adding, the only good news could be that crude oil gets pulled back from the high of USD 130 to USD 110.
However, he says, India has never been negatively correlated to oil. "Oil is going down because global growth is looking slow, it doesn’t help the Indian market," he told the channel.
For the near-term, he says the Nifty could move to 5,600.
Below is the verbatim transcript of his interview to CNBC-TV18
Q: It looks like there is quite a bit of risk aversion on the screen globally. What have you made of it? Do you foresee more damage for equity markets like India in the month of March?
A: We have clearly turned the page at least for the short-term. From everything is rosy on a global basis to suddenly starting to see cracks that were being ignored. I guess the Italian election was the first thing that caught the markets attention. Secondly, people are surprised the impasse on the US Budget situation with the sequestration is also causing some nervousness. Although, the market was fine with it on Friday.
It wasn’t expecting a magic solution over the weekend. So, the market is digesting that, but now there is news coming out of China. It suggests that the Chinese bounce back from extremely slow growth. Forget the GDP numbers, but they had very weak growth in the first half. It seemed to be bouncing back towards the end of the year. There are signs that the government is going to clampdown the property and other things are not looking that strong.
So, we have got three major global economic legs having some wobbliness to them. It does cause some amount of risk aversion, which could continue. There is a bit of a short-term trading risk to global markets and therefore to the Indian market too.
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Q: What is he bigger problem according to you, between the Italian uncertainty and the sequestration problem which has cropped up over the weekend or got confirmed over the weekend, which one of these two do you think has the higher probability of driving a phase of risk off in global equities?
A: May be the Italian problem is bigger, but they both are part of the same problem. The problem is not governments, but the voters. The voters are not adjusted to having to tighten their belt and to live within the means of the Budget. Therefore, they are trying to find easier solutions in Italy by the amount of votes that both the parties got. It shows that the voters are not happy with the formula that has been proposed, which is continuous belt tightening and trying to look within the means through fiscal tightening. That is not being looked at favorably.
Same way the debate in US, the president and the Democratic Party had taken from the election that we don’t have to really fix entitlements. This is long-term, almost any Budget observer will agree. However, the argument has become ‘are the rich paying too little taxes?’ So it has taken away from what needs to be the focus or what the fundamental issue is.
So, may be the markets are starting to fright that this kicking the can down the road with the central bankers providing easy money is not quite as painless. Thus, growth is going to remain challenged. As one gets these kinds of bumps in the road they are reminded again that growth is challenging. Financial markets may be willing to forgive and forget for a while, when the Central Bankers print money.
However, eventually it does affect earnings growth. Therefore, market expectations of optimism about earnings growth numbers and what valuations they are willing to pay for companies.