Nirmal Jain of IIFL says the measures taken by the market regulators to bring in some semblance of stability are only temporary and the government needs to take corrective policy decisions to boost the market sentiment.
The Indian equity market is in the green today, thanks to a recovering rupee. The home currency gained 43 paise to 60.18 per dollar in early trade today. Nirmal Jain of IIFL, however, says that the upward movement is only temporary and one should continue remaining cautious.
Additionally, in an interview to CNBC-TV18, Jain says the measures taken by the market regulators to bring in some semblance of stability are only temporary and the government needs to take corrective policy decisions to boost the market sentiment.
"India's growth story is still better than Brazil, China or Russia, but it has been frittered away by complete policy paralysis as well as indecision at government level. Government is just preparing for elections as we have seen and food security bill is another problem," adds Jain.
Q: Are you feeling cautious about the market given the news flow that has come up of late from both global markets and from our internal macros?
A: Yes. One has to be very cautious in the market. Today, the market has moved up little bit because global markets were better and gold imports had fallen and Reserve Bank of India (RBI) and Securities and Exchange Board of India (SEBI) and other regulators had taken certain steps to help the rupee.
The margin on the currency context also has been raised. But these are all temporary measures, they don't solved the structural problem. I am a bit cautious and concerned for two reasons. Firstly, emerging markets (EMs) in general have not been doing too well. Infact in last three years, if one looked at the outperformance of developed markets vis-à-vis emerging market; it is a whopping 55 percent. So, most of the global investors are waking up to this complete disbelief that growth has been higher, the developed markets have done so much better in dollar terms.
Hence, money is flowing out of EMs and that is why we are seeing Exchange Traded Fund (ETF) and index funds selling. On top of that, India's political situation is not very encouraging and foreign investors are not very enthused by the way our government is not at all worried about grim situation that is existing on the ground. We have still not approved FDI proposals, pharmaceutical sector, even elsewhere when rupee is so precariously poised at this point in time.
Although there was an opportunity because India's growth story is still better than say Brazil or China or Russia for that matter. But I think it has been frittered away by complete policy paralysis as well as indecision at government level. Government is just preparing for elections as we have seen and food security bill is another problem.
What will happen with this as Finance Minister tries to contain the fiscal deficit? Planned expenditure will come down further and that means that investment cycle which has been called up for last three years will continue to remain so.
No new employment has been generated in last one year and India is adding almost 12-15 million people to workforce every year. So, all these things don't auger well and the government needs to do something decisive, very quickly now. A sense of urgency is something which is missing at north block and we had an opportunity to control this damage, contain this and make sure that we don't get hurt as much as other countries in the EMs will be. However, at this point in time, one has to be very cautious and watch all the developments internally as well as on the global front very carefully.
Q: It is often difficult to exit from our market in a rush as well because of the impact cost that people face on their positions. Is it your sense that this outflow situation is going to carry on in a consistent fashion and for much longer where the market keeps seeing these steady outflows?
A: On a debt front, there has been USD 6.5 billion outflow in last one and half months which is higher than the net inflow in last one year. The total FII debt is about USD 50 billion out of which may be USD 6-7 billion is already redeemed. So, even if one sees some redemption there, there will be tremendous pressure on the rupee and total external debt is about USD 390 billion but this kind of a situation for the rupee is not good. Even the other lenders, whenever they mature may not renew the debt and that is where the risk is.
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