Watch out for rupee, pharma cos at risk: Kotak

Q:  What's the kind of downside do you see for the markets now from current levels?

A: It’s impossible to predict. If there is a big downside, it will be on the basis of continued no action or no movement and no decision making. It must be a combination of a very bad outcome in Europe. I think a base case downside maybe another 10%. A further downside would require a major external negative to come into play.

Q: Some of your peers have suggested that the second half may actually be the phase where we see the market see a derating. Would you say that looking likely and what do you think that will be premised on? Some of these policy issues we have been discussing or do you think earnings itself will start slipping compared to estimates?

A: No, derating of the market means that something more negative than has already happened should now come to the fore. The base case is just a swampy kind of a terrain where you can’t move forward, you can’t move back and you are just stuck in the middle and just waiting for someone to pull you out. So I would think that that’s something which is more likely to derate.

We would see that more bigger external events, something happening blowing up in Europe would actually be the cause. But again, we have seen that the European authorities at least if nothing else follow their American counterparts and inject liquidity in the market. So even that is something, which will, to some extent, stave off further derating of the market.

Q: How does this tie-in with what you are hearing on the liquidity front? This month, we haven’t gained too much and we haven’t lost too much. It’s just been a zero-sum game. What is it that you hear about liquidity interest?

A: We had a gush of liquidity in the first six weeks of the year in which everyone started singing a different tune just because the markets were rising. Right now, clearly there is no reason for big money flows into India. Everyone’s preoccupied with what’s happening in developed markets. Most people think that actually in the US things are looking fairly better, valuations are not expensive. I think in this kind of a state liquidity will not come to India.

If anything, people are switching to defensives in the portfolios. People are looking for domestic growth stories where there is some expectation that growth will be there and even valuations are expensive, people are sticking to defensives. So it’s not the big liquidity gush that anyone is expecting right now.