Mar 08, 2013, 03.25 PM | Source: CNBC-TV18

India more vulnerable to global woes Vs other EMs: Axis Cap

Liquidity has been the key driver of Indian market and will remain so going ahead, says Nandan Chakraborty of Axis Capital. However, he cautions that India is more vulnerable to global volatility compared to other emerging markets (EMs).

Liquidity has been the key driver of Indian market and will remain so going ahead, says Nandan Chakraborty of Axis Capital. However, he cautions that India is more vulnerable to global volatility compared to other emerging markets (EMs).

On the policy front, Chakraborty expects government's reform push to continue over the next two-three. This he feels would be the key domestic trigger for the market. "Given the twin deficit concerns, the economic recovery is still very fragile and would pick pace in FY14," he adds.

Also Read: See strong resistance at 5900; buy on dips: Sukhani

From the Reserve Bank of India (RBI) he expects a repo rate cut of 50 basis points (bps) within a month. In its January policy, the central bank lowered its key policy rate for the first time in nine months. It reduced the repo rate by 25bps to 7.75 percent. For the rest of 2013, Chakraborty foresees a total of 100 bps cut in repo rate.

Talking stock specific, he says Axis Capital has raised weightage on SBI and LIC Housing in its portfolio. It remains overweight on L&T , but has reduced weightage. "The US BFSI sector is in currently in recovery mode which will boost the Indian IT sector going ahead."

Below is the verbatim transcript of Nandan Chakraborty's interview on CNBC-TV18

Q: How are you feeling about the market because the broader market moves since the start of the year would have disappointed most retail and HNI investors? Do you see it being a bumpy ride this year?

A: A lot of stuff that will happen by the government will happen from outside the Budget , post Budget. It's a typical P Chidambaram Budget where a lot of fine print is there, a lot of positives come out after the Budget. The negative which had come, he immediately took it back. He said it was wrong.

Over the next two-three months, you will see a lot of positive news coming out of the cabinet and will buoy the market from a domestic perspective. The global perspective remains fragile, on that depends how we finance our current account deficit which is the divestments and spectrum auctions and so it remains fragile. I think the government is pretty aware of it.

Q: Would you lean towards more aggressive rate cuts in terms of monetary policy now? How much of a salutary effect will that have on equities?

A: There are three-four things that will happen over the next few months. One, the RBI would be open to rate cuts now. A lot of it will be front ended. It should cut 50 bps by next month and another 50 bps later on maybe towards the busy season policy during September-October-November. We will see 50-100 bps cut coming this year and they will be very positive on the rate sensitives.

Secondly, you will hear a lot of clearances coming through from the government as the it acts in concert. Thirdly, as the divestment news includes, which includes not just the government companies but also the non-government companies, you will see a positive news flow coming out of that because of a lot of confidence in the system there. What is also interesting is the fact that the spending by ministries which has been hardly anything last year.

Even if you don't take the huge planned expenditure that the government is projecting, even what is not spent last year is a huge amount and Rs 90,000 crore is similar to that. It is a huge amount which will start drive to capex. However, all this is still work in progress (WIP). What P Chidambaram has done is clever. The few things that he mentioned and will speak about, will happen by itself after the Budget which is getting a lot of people into the tax net. For example, he has hinted on the anti-money laundering schemes. So, for all jewellery purchases, the limits for which you will have to get your PAN cards and order maybe reduced.

Whenever you will buy a property, you will have to get your TDS. Again, you are a part of the tax net. Otherwise, the seller does not input credit on that. He also spoke about the Voluntary Disclosure of Income Scheme (VDIS) on service tax. You will see a lot of people getting into the tax net now. All this is yet to evolve over the next few months.

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