The fickle nature of the market makes it impossible to call near-term movements, says Sandeep Bhatia of Kotak Institutional Equities.
The fickle nature of the market makes it impossible to call near-term movements, says Sandeep Bhatia of Kotak Institutional Equities. He says the money, which has come through so far, has been motivated by the fact that valuations came down well.
But more importantly, Bhatia believes the rupee worries are behind us. "There is a floor to the currency, which is attracting flows. We have seen outflows from exchange traded funds (ETFs), so mostly it is active money, which has come in the last couple of days, taking selected bets. The kind of transactions that get reported like today clearly means that there is appetite for Indian equities from long-only fund managers and that is the kind of money, which we are seeing right now," he told CNBC-TV18 in an interview.
Going forward, Bhatia believes commodity prices and political developments will be key triggers for the market. However, he does not see the Nifty crossing 6300 anytime soon and expects earnings growth to remain muted.
"The overall earnings growth trajectory of 10-11 percent is nothing exciting, but it still is better than what is happening in the rest of the world," he adds.
Below is the verbatim transcript of his interview to CNBC-TV18
Q: Do you think the Reserve Bank of India (RBI) will not deliver a big surprise today on the way up?
A: Our bet is that we will see a 25 bps cut. Infact we continue to push that. In the next quarter we will see two more cuts of 25 bps each. So, including today’s cut we will have a 75 bps cut from here on.
The RBI is still in a very cautions mode. What they use is very limited flexibility that they have. I think some of the micro numbers would give some comfort. I think the inflation trajectory will still be weak.
The rupee worries are right now behind us for the moment. So, unless things change on the macro front our call of 75 bps cut from here to the end of next quarter would probably come through. I think we will see RBI moving but in steps of 25 bps points.
Q: Do you think there will be a CRR cut as well because some of these repo rate cuts come and go, they excite the market for a day but they find no transmission from the banking system. In that sense they are economically immaterial much that the signaling happens?
A: Not right now, not in this policy installment. We think we will have to wait for that to happen so not right now is what we would think.
Q: What are you hearing from the sales desk over the last few days? In the last 11 days the Nifty is up 9-10 percent. What kind of money has walked in over the last fortnight?
A: Last time I said that things will actually improve, it looked impossible that things can change but this market is very fickle. It is impossible to believe that things will continue to fall or it is impossible to then draw straight line up always. So, right now the money which has come through has been motivated by the fact that valuations came down well.
If one looks at the overall earnings growth trajectory of 10-11 percent, it is nothing exciting by any standard at least by Indian standards. However, it still looks better than what is happening in the rest of the world.
To cut the long story short there is a floor to the currency which is attracting some of the money which is coming through. We have seen outflows from Exchange Traded Funds (ETFs). So, mostly it is active money which has come in the last couple of days taking selected bets. The kind of transactions that get reported like today we saw Bharti Airtel, it clearly means that there is appetite for Indian equities from long only fund managers. That is the kind of money which we are seeing right now.
Q: At this level do you see that force of money being there above 6000 Nifty or has the valuation argument become weaker after the recent rally?
A: Yes the valuation argument has become weaker in the recent rally. So to that extent the things that needed to play out have already played out. We got a bonanza when Unilever announced open offer for Hindustan Unilever ( HUL ) at Rs 600. So, that really raised expectations for other MNC stocks and also put a floor on the rupee.
Barring that bonanza which happened, I think if we have these one off bonanza announcements then clearly the market can rally. However, yes right now there is cap in terms of valuations on the market. We need to see some more passage of time therefore market from these levels, it is very difficult to see the market go over 6300 Nifty right now.
Q: What are you telling your clients to do on HUL now with the stock price stalling around Rs 570-580?
A: Fundamentally that is where the stock price should settle with the open offer at Rs 600 given a probability of getting only a fraction of the shares accepted. We would think that the stock will remain at these levels. To get another leg up on the stock we have to demonstrate significant improvement in consumer environment.
The only thing that HUL open offer has done is make every global MNC especially in the consumer segment re-look at what it is doing in India and what is its business operations in India should be valued at. This is clearly a case where returns on the cash balances for global corporations are very low now.
As far as Unilever is concerned they think it is a fantastic move to take a strategic stake right now. I don't think anyone can disagree with that. The Indian consumer story has remained strong. Even in the worst phase in the last couple of years of the Indian economy.
All said and done as far as Indian shareholders are concerned for the stock price to perform from here onwards, we need a better consumer environment and that will take some time.
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