Need RBI easing, capex pick up for upmove: DSP BlackRock

He feels that that interest rate cuts will be important catalyst for Indian equities.

In an interview to CNBC-TV18, he said, "Clearly, any reduction in interest rates and the fact that results have continued to be fairly modest, we seem to be getting to a point where even margins seem to be bottoming out slowly. It is a slow recovery but from a market stand point, it is a good base that gets formed for better performance going ahead."

Also Read: HSBC bearish on India, says Q2 to decide market moves 

He is optimistic that there are enough catalysts for international investors to keep India on radar.

Maheshwari advises investors to deploy funds in quality companies with a long-term view. He also sees more value in cyclicals at this point.

Below is the verbatim transcript of the interview

Q: How have you responded to all the events of September, the move in the market and where it has left prices now?

A: A lot of good things have happened, and hopefully, we aren’t done with that yet. This is probably the start but at least the tide, in terms of direction and the repair of whole economic process, seems to have changed. I think the biggest catalysts that we are looking for incrementally are activity on the interest rate front as well as getting the whole capex cycle back on track. If we do see some more concrete measures in that, it will help as well.

Fundamentally, we are a lot more comfortable with the situation in terms of how it is likely to hold in the next couple of years than we might have been six months ago. Clearly, any reduction in interest rates and the fact that results have continued to be fairly modest, we seem to be getting to a point where even margins seem to be bottoming out slowly. It is a slow recovery but from a market stand point, it is a good base that gets formed for better performance going ahead.

Q: A lot of people debunk the parallel between the 2003-2007 phase saying that none of those ingredients are in place to start fuelling a bull market this time around. But do you sense that in the next four quarters, maybe some of these elements will slowly start to fall into place?

A: It is not perfectly accurate but the closest parallel we can actually draw to today’s market scenario is 1996-1997 phase, where the general economy was in a slowdown. Banks were laden with all sorts of bad loans. Things pretty much looked like they are looking today. We had consumer stocks on a bit of roll at that stage as well.

I think 2003-2007 was fairly unique where globally, all markets went up and liquidity was ample, and we saw strong growth happening globally. That doesn’t seem to be the scenario for the next 3-4 years at least not in that scale. It is more akin to the 1997-98 or around that period of time, where things were fairly slow for a while, and then gradually started recovering.

Q: On hindsight, what would have made sense to do in 1997; the global tailwind may not be there, if you liken it to that kind of phase, what is the prudent investment strategy for people who are getting in now?

A: Clearly, in a very slow economic phase, the whole cyclical part of the market tends to get undervalued. It takes a while for them to come back but valuations tend to bottom out before that. In the next 1-1.5 years, we are not seeing a bit of equalisation to take place now between the fairly extreme valuations that exist in the market for the past couple of years. You don’t have any fundamental evidence for backing that up today but it tends to come gradually over time.

When we look for value in the market, those are the areas where we find it most difficult to take a fundamental view. Or it is not very apparent to you today, but turning slightly optimistic on that part of the market, takes time.

We have been repeatedly saying that this is still a patience game. But there are periods where the market will cover up quickly and reward investors eventually. There will be some periods and there will be volatility. This is not a one-way bull market for sure for some time. Nonetheless, it is a market that clearly offers returns. Therefore, if you patiently stick to it and start allocating, any interest rate reductions will also very important catalysts for equities in general. Clearly, one has to be more optimistic now than before.