Kotak Institutional Equities expects to see rupee at 62 to the dollar. A further fall is imperative because Reserve Bank of India (RBI) has very few options to stem the rupee fall.
Indian debt market should brace for further outflows to the tune of USD 2-3 billion over the next one month says,Sandeep Bhatia, Kotak Institutional Equities, in an interview to CNBC-TV18. India has already seen an outflow of USD 4.8 billion in the past few months.
The morbid newsflow can worsen as Bhatia foresees the declining rupee going all the way to 62/USD in the face of limited options left for Reserve Bank of India (RBI) to stem the fall. The market will naturally be hit and 5200 on the Nifty can easily be seen, he says.
Stock specific, he says JSPL after the recent collapse looks like and interesting opportunity but cautioned not to expect quick returns. One will have to hold it for the long-term.
Below is the verbatim transcript of his interview on CNBC-TV18
Q: What are you hearing from the sales desk in terms of how much money could potentially go out? So far in the last 10 days we have lost just about a billion dollars?
A: We are now getting into a zone where from hereon maybe at least till the end of this year, we would see couple of days of huge outflows. Yesterday, we saw Foreign Institutional Investors (FII) selling USD 351 million.
In the near-term we could see further outflows from the debt side. We have already seen USD 4.8 billion going out. Another couple of billion dollars can easily go from Government of India (GOI) debt. We definitely should expect outflows of between USD 2-3 billion in the next month or so.
Q: You do track these Exchange-Traded Funds (ETF) quite carefully. Is that what you are seeing anecdotally for equities as well that the selling has accentuated ever since yesterday?
A: Although what happened yesterday was just a reaction to the comments, the selling has started, so we will have to brace for couple of days of more outflows.
It would be almost foolish to expect that this was the first and the last day of that kind of outflow that we have witnessed. When we were getting the inflows, no one was questioning the inflows and everyone was happy, but everything in life comes to a full circle. So now we are at other end of the circle.
A: I think we have to brace for some more volatility on the rupee. The real issue is that we are in a position where if RBI intervenes it could easily lose a couple of billion dollars by selling dollars and in the bargain actually suck rupee liquidity out. So, the options which the RBI has are very little. Therefore, it has done the right thing by staying away.
One of the foundations of a good recovery is that there should be a lot of cleaning out. We are in the process of seeing that cleaning out take place. We have already upped our forecast range for rupee. We think the rupee can go up to 62. Whether that happens now or it happens in the later part of the financial year, it remains to be seen. But yes, there could be further weakness in the rupee.
As far as the markets are concerned, 5200 on the Nifty can easily be seen.
Q: Yesterday we saw a lot of delivery based selling in names like ICICI Bank , Housing Development Finance Corporation ( HDFC ), Reliance Industries , HDFC Bank . Do you think, these kind of high quality names which are well owned by institutions could come under more pressure relatively speaking in the days to come?
A: If the indices are to slide then the large names have to fall and some of the names that you have mentioned have very high weightage in the indices. In this kind of a financial landslide that we are witnessing, a lot of damage is done which is also essentially an opportunity. We can easily see up to 10 percent downside on these names and if that happens, it is a good time to accumulate.
The tragedy of all this is the fact that we are going to remain in a market which has been essentially favouring high quality names even if valuations are high. I do not see any reason for people to move away from that story.
If GDP growth reaches 6 percent this year it will be only because of good monsoon and some good luck. Other than that growth will still remain in the 5.5-5.7 percent region and that would be the base case assumption.
One will just have to stick to quality and look for opportunities where valuations look relatively better than they have been rather than cheaper.
READ MORE ON Sensex, market, BSE, NSE, Sandeep Bhatia, Kotak Institutional Equities, USD 2-3 billion, Indian debt market, Reserve Bank of India (RBI), Nifty, JSPL, Government of India (GOI) debt, ICICI Bank, Housing Development Finance Corporation (HDFC), Reliance Industries, HDFC Bank, GDP growth, Hindustan Unilever, gas price formula, Quantitative Easing (QE), FMCG
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