The macro situation in India is so challenging that it tends dominate people's thinking on the market says Dhawal Mehta, head- India equity investments, Reliance AMC.
While most FIIs are confident on Indian corporates and their businesses, Dhawal Mehta, head- India equity investments, Reliance AMC, says the country's tight macro economic situation is their main worry. India's widening current account decficit (CAD) is concerning investors he adds.
Q: It has not been a great start to the year after such a good 2012. Do you think 2013 might remain this bumpy?
A: Yes, I think so. The past year, 2012, was obviously a good year. We ended the year up almost more than 25. A lot of that was because of the momentum that was seen September onwards.
This year has not been the best of starts. We have all seen what happened in the month of February. It does seem like it is going to be a volatile year given all the macro challenges that India has. Plus, there are uncertainties from the global space. So, I would think that we are set for a fairly choppy year.
Q: What is happening with flows because we saw such strong flows in 2012 but despite strong flows in January and February, incrementally the market is not moving higher. Why do you think this tiredness is seeping in?
A: A lot of it has got to do with the fact that there has been a large amount of domestic selling. I do not have the numbers but I am sure in the first two months, we have seen fairly strong selling from insurance and domestic mutual funds. So, that is obviously having an impact. However, I agree that incrementally, the flows from the foreigners do not seem to be helping the market in an incremental way.
Q: Do you think the supply of paper from the government might also be a factor?
A: Yes, absolutely. That is the other factor. You are right. We have seen so much paper come in the first two months both from the government as well as from the private sector. That is sucking out liquidity.
Q: What is the reality for India-dedicated products? Is it difficult to get a lot of inflows? Would you say that the money which has come in is coming through very different vehicles this time around?
A: Yes, absolutely. This is not just true for the last six months or one year, it has been a trend now. For a while, a lot of dedicated India funds, irrespective of whether it is long or long short or any format for that matter, have not seen flows. Infact, they have probably seen outflows and a lot of the money that has come in, is largely coming from the exchange traded funds (ETFs) and from regional and global funds that have probably raised India allocations. So, that is a bit of a worrying sign especially for people like us who are active India managers.
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