Rahul Chadha of Mirae Asset Global Investments sees falling inflation and rate cuts as triggers for the economy. He remains overweight on pharma stocks and wary of refining and petchem stocks.
The rally in the stock market faced selling pressure in the past two sessions and traders and market experts debate if it is a temporary blip. According to Rahul Chadha of Mirae Asset Global Investments, the market will take a temporary breather amid worries of trade deficit.
" Trade deficit was higher than expected and expectations for the month of May are also not quite positive. So I think somewhere currency or the trade data weighs on the market sentiment," Chadha told CNBC-TV18 in an exclusive interview. He said the Reserve Banks decision to ease rates may take a hit due to trade deficit although a 50-75 bps rate is on the cards until March 2014.
He, however, dismisses inflation as a concern but questions asset quality of PSU banks. Chadha sees falling inflation and rate cuts as triggers for the economy. He remains overweight on pharma stocks and wary of refining and petchem stocks.
Below is the edited transcript of Rahul Chadha's interview with CNBC-TV18.
Q: Do you expect a breather after the recent run up or do you think it is just a temporary one?
A: Temporarily we will take a breather. If we just kind of trace back, the rally started mid-April, on the back of current account data, the trade data which we got and inflation. Inflation continues to surprise positively. That has also manifested into sales growth for corporate India, which is touching as low as 8 percent. So inflation is less of a concern.
But like the way we saw for the month of April the trade data was a bit worrisome. Trade deficit was higher than expected and expectations for the month of May are also not quite positive. So somewhere currency or the trade data weighs on the market sentiment and then the valuations are also not cheap. On the other hand, falling inflation, rate cuts to revive economy are positives.
Q: There is also a slew of offers-for-sale (OFS) that we are going to see from now into the end of June, do you expect that to make a significant dent on liquidity and hence impact the market as well?
A: Near term it can obviously suck that liquidity out of the market. But beyond that again in a month from now we will be looking at same fundamentals - inflation, trade data and whether these rate cuts are having an impact on the demand in the real economy because at the end of the day, the rate cuts have to lead to consumption revival in the economy. Should we fail to see that, then clearly the markets can correct from here.
Q: What is it that you guys are picking up about liquidity though and the interest in emerging markets (EMs) because there is a strain of nervousness ahead of the event later tonight but generally on liquidity, are people quite comfortable?
A: Global liquidity remains high. Clearly Fed has also said in the past that they are looking at employment, which is yet from satisfactory in US for them to curb on the liquidity, though one keeps hearing all these thoughts or statements on some kind of a withdrawal of liquidity. But I still think its early day and to top the effects of it, we have got Japan which is spending its own money.
So clearly liquidity remains abundant and India is not the only market which is doing well. You look at the Association of Southeast Asian Nations (ASEAN), some of the yield plays in Singapore or markets, which have got good earnings tractions like Thailand, Indonesia, Philippines have done well.
So clearly India has been a particular beneficiary of this rebalancing, which is happening in China, which has led to a benign outlook for commodities, which where inflation in India is falling, we have seen rate cuts happening. On a micro level in India, we have seen some of these companies like private sector banks, health care and some of the auto companies coming up with good numbers, which is where liquidity is finding its way to.
Q: What kind of funds are getting these inflows, are there still allocations from larger emerging funds which is coming into India or has it come to the point where some of the India dedicated funds too are now beginning to see some inflows?
A: Globally investors are reluctant to put their money in a single country fund - whether it is India or China because each of these countries has their own set of issues. Whereas at the same time they want to play the equity story because the yields on alternate assets remain poor.
So what we see is them putting money in a pan Asia fund. Within our Asian funds, we would be overweight India and ASEAN and would be underweight Korea and Taiwan because we believe from a medium-term perspective, we have got pockets, some consumer discretionary, some staple and pharmaceutical names or some financials, where despite near-term expensive valuation, there is a good 2 year story. We believe that over the next 2-3 years one can still outperform compared to other markets.
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