RBI easing to be a tailwind for mkt next year: Goldman AMC

Khemka feels corporate earnings will bounce back once macros improve. The market, he says, will also keep a keen eye on the political developments in the country.

Also read:  RBI policy action 'deeply disappointing', says Samir Arora

Below is the edited transcript of Khemka's interview with CNBC-TV18.

Q: How is the dais loaded for India now?  Because since September it has been pretty interesting the kind of news flow that has come in. Are you bullish or skeptical?

A: We are constructive about the Indian market at this point in time. If you look back over the last two years, there are three factors that have most prominently impacted the Indian markets; the inflationary environment and related policy actions, the ongoing European turmoil and the lack of an enabling policy environment.

What you have seen over the last two months or even from a longer-term perspective over the last two years, these three factors have varied in terms of degree of importance. So, inflation was a primary concern, sometimes a policy action was the primary concern, but at this point in time and over the last two months if you see- inflation and related policy action seems to become more and more of a rare view mirrored problem.

People are disappointed that policy action or reduction in rates was not announced yesterday, but they are still expecting it in the near-term. It is not the worry that inflation and interest rates might spike up from here. So, the next action is going to be tailwind rather than headwind which was the case for most of the last two years. European turmoil, where the markets are today, both the bond markets and equity markets in Europe seems to suggest that the risk of a downside event is minimal at this point in time. The market seems to be suggesting that some event like the  Lehman Brothers is not around the corner or on the horizon.

The spate of actions, announcements and developments on the political front, over the last couple of months, have been very conducive to improving corporate sentiment which has nose dived over the last 12 to 24 months. So when we look at these three factors in combination, which had been weighing down on the market, as a consequence of which we are sitting today lower than where we were at the end of 2000, the combination of these three factors is most favourable at this point in time than it was over the last two years.

We have quite a constructive (view on market). A lot depends on how the macro unfolds over time. At this point in time, with fundamentals where they are and the multiples on the market at about 14 times, which at a discount to longer-term averages, (we are) sitting at the tail-end of five years of sub-trend earnings growth. Corporate earnings have only grown at high single digit compared to longer term trend of 15 percent. So, there is a lot of latent or suppressed earnings power. If the macro environment were to continue to become more enabling, we can see corporate earnings bounce back from decade low level earnings profitability; margin levels as well as suppressed top-line. Corporate earnings can bounce back and with multiple, which is below average I think it is very reasonable to be constructive on the market at this point in time.