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FII outflows could send mkts to Jan lows: HSBC Pvt Banking

Published on Mon, Jun 02, 2008 at 18:33 | Source : CNBC-TV18

Updated at Tue, Jun 03, 2008 at 09:29

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Ajay Loganadan, Head of Investment Advisory Group, HSBC Private Banking

Excerpts from Markets Today on CNBC-TV18 Watch the full show »

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Ajay Loganadan, Head of Investment Advisory Group, HSBC Private Banking , said high inflation is one of the main concerns for the market. "FIIs are not comfortable with the trade deficit numbers. Foreign fund outflows are over USD 1 billion in the last fortnight. If FII outflows continue, markets could hit January lows."

According to Loganadan, India's GDP is likely to grow at 7% in FY09. He said the US still remains a big concern.

On commodities, he feels prices may see some softening. "I am neutral on the energy and metals pack as of now."

Excerpts from CNBC-TV18's exclusive interview with Ajay Loganadan:

Q: What would you put this sharp sell-off to?

A: If you look at Friday and early today, the markets were rallying on the back of good GDP numbers that we saw for Q4. For the year, we saw 9% GDP growth. Three years in a row, we have seen above 9% GDP growth. On Friday, we saw inflation at above 8%. That's really the big trigger. If you look at the Prime Minister's statements this morning alluding to a fuel price hike, which again is inflationary, then one is looking at possibly a Monetary Policy, which could be in the form of either CRR or repo rate hikes. This again is going to slow the economy down. FIIs are not comfortable with the large trade deficits. A large chunk of the buying that came into the second half of the day has come from FII buying.

Q: What is the outlook from here? People have been talking about a retest of the January and March lows, which isn't very far away 4-5% from here. Is it likely?

A: It is likely, given the kind of newsflow that we have been getting and the outlook in regard to possible downgrades in earnings and growth forecasts for India. Our outlook for this year 2008-09 is for GDP to grow at 7% and to be down from 9% levels.

So, if you look at the overall picture, the US is still a big concern. During periods of uncertainty, peak interaction, money moving out of emerging markets, the FII numbers are telling us something. If we look at the month of May, it has been USD 1 billion as far as FII outflows are concerned. If that continues, in a period where volumes are very low and sentiment is negative, you could very well see further downside to the market.

Q: Where do you stand on these commodities - crude and metals ? Are you in the camp that believes a big correction is coming? How would you position yourself in these commodities now?

A: If one takes a look at the entire commodity space including energy, we are neutral. We are neutral on the metal space as well, primarily because we have seen a pretty significant run up and one could see some softening. There are always excesses in the market and excesses have to correct themselves. We are neutral at this point of time, both on the energy pack as well as the commodity pack.