RBI, Fed meet to set mkts’ future course: Birla Sun Life

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A Balasubramaniam, CIO, Birla Sun Life, said investors have two events to look forward too. "One is the RBI Governor meet on January 29, where the direction for interest rates would emerge. Then, there is the Fed meeting, which is scheduled for January 30. The immediate trigger would be the return of Reliance Power subscriptions sometime in the first week of February. So, there is a high probability of the market coming back quite aggressively from current levels."

 

Excerpts from CNBC-TV18's exclusive interview with A Balasubramaniam:

 

Q: Are you shopping at all? If yes, then what?

 

A: Whenever valuations are supportive and prices are in our favour, we have been doing some amount of shopping. For the last 3-4 days, we have kept on looking at every opportunity that is coming in at every fall. For the last two days, we have noticed that there has been a little bit of excess that has been created, fueled on the basis of what one has seen in the global market and second what we are currently seeing at the retail level, in terms of leverage positions being very large and getting squared off. As a result of this, we are able to find some big opportunities there. It is very tough to move from one to the other at a time when everything is falling together. One is not able to do too much of reallocation to stocks, even if the valuations are attractive. We would be sitting on anywhere between 5-6% of cash, so some bit of shopping is being done.

 

Q: What is the kind of recovery that this market can see at this point in time, because every bounce back is being sold into? As a fund manager, what could lead this recovery at this point?

 

A: The Sensex itself has corrected about 28% from its peak. The Nifty has corrected about 13%. The midcap index has corrected almost by about 32%. Some individual stocks, inspite of having strong fundamentals, have fallen by almost 45-50%. From a fundamental point of view, especially from the economic angle, nothing major has changed. The results season have now been on a roll and so far they have been coming good. At the same time, we have two events to look forward too. One is the RBI Governor meet on January 29, where probably the direction for interest rates going forward would emerge. Then, there is the Fed meeting, which is scheduled for January 30. Earlier, the market were discounting a steep cut of 50 bps on the Fed rate.

 

These are the two events. Immediately after that, we have the budget expectations. One should remember that liquidity in the markets as a whole has become dry post the Reliance Power issue. It means that most investors would have gone and invested their money in the Reliance Power issue. From a market perspective, the immediate trigger would be the return of Reliance Power subscriptions sometime in the first week of February. Second, would be RBI's policy which could give some direction. The earnings season by that time will get over. There is a high probability of the market coming back quite aggressively from current levels. Investors must remember that excesses have happened and this has brought down the market to a level which nobody would have thought of.            

 

Q: While we are waiting for pay-ins to happen, while brokers are not allowing fresh positions to be built in, even from the retail space, how close are we to starting that recovery move, given all these other factors domestically?

 

A: The fall has been there since the last 4-5 days. Everyday, people discover what is the kind of shortfall they will be having. Today, it is not coming only from retail investors, it is coming from across market participants, which is hedge funds or local HNIs.

 

At the same time, mutual funds and insurance companies have been collecting a lot of money. It is also the combination that one has to look at from a broader market perspective.

 

For how long can the pain continue? One has to only go by what we have seen in the last 3-4 days. The fall has been very severe, the damage that has happened in some of the sectors that are fundamentally strong, which in my view is not justified. Hence, the probability of the market bouncing back could be very high. But the question is it 2 or 3 days, it will probably remain a question mark to be answered.

 

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