Apr 25, 2012, 03.48 PM IST | Source: CNBC-TV18

FIIs inflows may dip on global liquidity woes: Dalton Cap

Markets are keenly waiting Fed forecast on economic and interest rate to be announced on Wednesday night. The Fed is widely expected to take no action, make no moves towards new easing or significantly change its statement.

Markets are keenly waiting for Fed forecast on economic and interest rate to be announced on Wednesday night. The Fed is widely expected to take no action, make no moves towards new easing or significantly change its statement.

This is increasingly scarring experts as Europe too is not indicating of any liquidity easing measures on the back of upcoming elections. UR Bhat of Dalton Capital Advisors is concerned that unless there is new injection of liquidity the inflows are probably going to take a dip.

"LTRO money has also had its run so therefore unless there is new injection of liquidity in the European markets the inflows are probably going to take a dip," he said in an interview to CNBC-TV18.

However, there are other worries too staring Indian market. Dalton warns that in the absence of adequate policy reforms, the market may suffer huge losses. He also points out that FIIs may flee from India on uncertainties overhanging General Anti-Avoidance Rule (GAAR) issue. Besides, fourth quarter corporate earnings have been disappointing this far.

"I think there is further pain that could come about again as even the market is reasonably priced in, it is not as if it is terribly cheap, it is sort of a neutral valuation territory. So therefore, the downside could be huge if any of these events play out against market sentiment," Dalton elaborated.

Here is an edited transcript of his comments. Also watch the accompanyign videos.

Q: How would you position yourself in the frontlines in the technology sector now?

A: I don’t think the results of the big technology companies have given any cause to cheer. In fact, the guidance has been quite disappointing. Since valuations have corrected quite a lot, I think people still continue to be interested given the state of the market and the quarterly results over the last few weeks.

So I think that is the place where you would probably hide as a result of quite a lot of downgrades. As a result of this, there has been a correction in the market with respect to these stocks. Otherwise, there is nothing much to comment on investing in these stocks as of now.

Q: We have been through a monetary policy, some of the earnings season, global developments, would you say the market has displayed resilience or are you worried about what the next months may throw up?

A: There is a cause for worry next month largely because of the fact that we have the Budget that will be passed and the rules relating to General Anti-Avoidance Rule (GAAR). Therefore, I think there is some expectations on that. Also the fact that the quarterly results that have come till now especially, the larger ones, have been quite tepid.

But I think the big development would be in Europe where we have several elections coming. They don’t seem to point out to the right direction as far as inflows from FIIs are concerned. We have serious problems as far as the French election is concerned. With the austerity measures hammered down, I think this maybe up for further discussion because governments, which have been pushing through austerity measures, have not found favour for the electorate.

The other fact is that the liquidity inflow on account of LTRO two installments has probably played its course. Unless there is further liquidity injection and some amount of certainty as far as the euro land is concerned, I think there would be some issues about FII inflows.

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READ MORE ON  market, nifty, bse, nse, sensex, Europr, LTRO, fed, FII, UR Bhat, Dalton


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