SENSEX NIFTY
Jun 21, 2013, 04.04 PM IST | Source: CNBC-TV18

India still looks good on dollar-adjusted basis: Edelweiss

Based on their interaction with foreign institutional investors (FIIs) at the Edelweiss Agri-Conference, he does not think FIIs will continue to sell majorly in the near future unless global emerging market (GEM) flows as a structure, category or asset class reverse.

Asset classes across board turned volatile post FOMC meet on Wednesday, which led to a selloff in emerging markets including India. However, Vikas Khemani, Edelweiss Securities Khemani feels India is much better placed than other emerging markets (EMs) and will continue to get flows.

"On a dollar adjusted basis Indian market still quite reasonably attractive," he adds.

Based on their interaction with foreign institutional investors (FIIs) at the Edelweiss Agri-Conference, he does not think FIIs will continue to sell majorly in the near future unless global emerging market (GEM) flows as a structure, category or asset class reverse.

Most of the agri companies from our conference are giving fairly positive outlook, says Khemani.

Meanwhile, long-term investors could use these sell-offs as an opportunity to build positions, he states.

Also read: Attracting FII funds a test now; see rate cut scope: Gokarn

Below is the verbatim transcript of his interview on CNBC-TV18

Q: After the big fall that we saw yesterday today things are a bit stable. So what is the call that you are giving to investors? Should people sell into the rally?

A: Post Fed commentary we have seen markets across the world and across asset classes kind of being volatile and getting spooked, the reason being the incremental call on the liquidity is yet to be ascertained. While Fed's commentary actually relates to managing the expectation that Quantitative Easing (QE) is going to be withdrawn in an orderly manner over a period of time and Fed over last two statements have been trying to set that expectation in the market.

I do not think they are going to go ahead and immediately start withdrawing and create a situation in the market where there will be liquidity squeeze. So, post the immediate reaction, from a short-term and technical perspective markets will settle down, stabilize. And should markets continue to remain spooky, regulators would come and give comforting statements to the market. Because I don’t think it was their intention to spook the market as such but build up expectation that liquidity will be withdrawn over a period of time.

So, from a structural perspective, you might make an argument that probably the sustainable flows towards emerging markets (EM) might slowdown. However, I do not think in the next 6-12 months you will start seeing a withdrawal from EMs, but the flows might slow down. Therefore, one has to really look at that if US is growing back then what does that mean in terms of growth to the EMs.

For markets like India I feel that there is a lot more to do with the Indian story, lot more to do with the domestic problems. We are much better placed than lot of other EMs. I feel that India will continue to get flows. On a dollar adjusted basis Indian markets are still quite reasonably attractive. Also over a period of time as these uncertainties on election etc settle down, and as macros start stabilising then India from a slightly longer term perspective offers a good investment opportunity. So our advice to long-term investors is that use these opportunities as and when markets are spooky, to build your exposures out here.

Q: Have you done any work on how Earnings Per Share (EPS) estimates will change? Of course for some it is going to be beneficial as import competition reduces, but any estimates at all on how EPS for your world of companies changes? Does EPS growth fall dramatically?

A: I do not think we have done any number in terms of sensitivity, because it is very difficult to predict a number for the whole year, on the EPS given the significant amount of volatility going in the currency.

To do an assumption on the EPS you need to take a number and you do not even know what number it is going to be; so it becomes very difficult to do that. One can only look at various scenarios and what kind of impact they will have on the balance sheets and P&Ls, which is what our report has attempted to do.

Q: Would you say from experience that given a 10 percent depreciation of the currency or perhaps from Year-To-Date (YTD) an 8 percent depreciation of the currency, chances are of your EPS estimates getting lowered?

A: I do not think there will be a significant downgrade in terms of sustainable EPS. Given the 10 percent depreciation in currency, there are lot more stories like IT, export oriented pharma stories, which would benefit on the earnings. Broadly, speaking I don’t think there would be a big impact on the EPS.

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