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Though not much is expected from the European Union Summit, it will instill confidence in the market if it manages to deliver. The summit is expected to result in a stimulus package of some 130 billion euros in infrastructure bonds, regional aid funds and European Investment Bank loans.
As not much is expected from the European Union summit, it will instill confidence in the market if it manages to deliver. The summit is expected to result in a stimulus package of some 130 billion euros in infrastructure bonds, regional aid funds and European Investment Bank loans.
Amidst low hopes, Nitin Rakesh MD & CEO, Motilal Oswal AMC is a bit optimistic that Indian market may rally 5-7% if EU summit delivers. He feels that that probably there is some level of support coming in from global macro with crude falling like ninepins.
"Despite all the negative news flow, from across the world overnight Monday, we did pretty well yesterday. I think it seems like that the market is refusing to actually fall below 5100-5050 mark. So that’s clearly one good sign. Maybe we are seeing valuation support," he adds in an interview to CNBC-TV18.
Rakesh is hoping for a 15% YoY earnings growth in the first quarter of FY13.
However, there are some concerns that are keeping foreign investors away from India. He points that among the emerging markets, India is the least preferred one due to the policy inaction by the government.
"Even if EMs come back into flavor I think we will have to actually have to compete very, very strongly for capital based on where we can differentiate ourselves, where we can make a difference from the point of view of giving that confidence to people that this really indeed is a growing emerging market," he reiterates.
Below is an edited transcript of his interview with Udayan Mukherjee and Mitali Mukherjee. Also watch the accompanying video.
Q: Are we going to see this range bound situation continuing for a while or do you think the triggers in July could lift the market into a higher range?
A: I think the market is in a fairly lackluster phase right now. There is so much news flow from outside of India, there is lot of news flow from Delhi and earnings season is around the corner, so I think it’s going to be interesting to see which way the momentum breaks through.
From a technical perspective it seems like there is a lot of support at these levels. Despite all the negative news flow that we had from across the world, we did pretty well yesterday. It seems like that the market is refusing to actually fall below 5100-5050 mark, so that’s clearly one good sign. Maybe we are seeing valuation support, maybe we are seeing some support coming in from global macro with crude falling like ninepins.
But having said that, we haven’t yet seen any triggers for the market to rally sharply. So I think it’s right now a testing phase from a patience perspective.
Q: Does this relative resilience read as a sign that the market may rally sharper as well if it gets some good news? For instance, if things go off reasonably positively at the EU summit, would you say it’s a 5600-5800 kind of event?
A: I think that will be a little bit of a stretch right now based on where we are. We still need to see a lot more happening from Delhi. It’s clearly been a complete holiday on policy front; it seems like the summer holidays have extended all the way into June and maybe going into July. So I don’t think that we are setting up a base for that kind of a move.
But I think 5-7% is possible assuming that we get good news out of the EU summit. It seems like the only thing they can agree on is to disagree, so it’s a tough call right now on that front.
Q: Most of the money adjustments are playing out in the Futures and Options market right now, no one’s making any cash commitments. Is this caution ahead of the global event or people generally averse to getting into India right now?
A: We had an interesting call with one very large asset allocators earlier this week. Their perspective was that India is one of the least preferred emerging markets right now; probably not because of the macro situation, but more because I think their view on India seems to be driven by what they feel is policy inaction. The currency also spooked a lot of them based on what they have seen in the last six months.
So I think while the first phase of currency depreciation that happened last year was all EM pack was depreciating, we did a little more. I think this time around, despite crude correcting, despite commodities correcting, despite interest rate cycle being behind us, it’s really put the fear of God in lot of the foreign investors who are large asset allocators into India from a long-term perspective.
So at this point in time I don’t see a gush of liquidity coming in. Even if EMs come back into flavor, I think we will have to actually have to compete very, very strongly for capital based on where we can differentiate ourselves, where we can make a difference from the point of view of giving that confidence to people that this really indeed is a growing emerging market.
Q: For the second half of the year what’s the more likely scenario will be have alternate bouts of optimism and pessimism that we have been seeing since December last year or do you think we could find a trend, even if it’s a weak uptrend, with a little less volatility?
A: I think I would go with the latter given that we have seen a fairly long consolidation phase, given that we will see a little bit of earnings support that basically transfers into valuation support. I think it’s likely that we will probably stay in a mild positive zone.
Looking for sharp moves like 50-60% rallies in a year’s time is probably hard to imagine right now, unless things change so drastically and we have a gush of positive news coming out of almost every corner. Barring that kind of an event happening, I think it’s probably going to be a slow steady type of an environment. So focus much more on how the domestic situation is improving and how the earnings momentum comes back at some point.
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