Short-term mkt outlook bleak: Ved Prakash Chaturvedi

Ved Pakash Chaturvedi of Tata Mutual Fund sees Indian markets still in the woods in the short-term. However, he has a positive outlook on the long term. He expects markets to go higher from here on. The current rally is clearly a bear market rally. At present, valuations are down 70-80%.
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Dec 12, 2008, 12.42 PM | Source: CNBC-TV18

Short-term mkt outlook bleak: Ved Prakash Chaturvedi

Ved Pakash Chaturvedi of Tata Mutual Fund sees Indian markets still in the woods in the short-term. However, he has a positive outlook on the long term. He expects markets to go higher from here on. "The current rally is clearly a bear market rally. At present, valuations are down 70-80%."

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Short-term mkt outlook bleak: Ved Prakash Chaturvedi

Ved Pakash Chaturvedi of Tata Mutual Fund sees Indian markets still in the woods in the short-term. However, he has a positive outlook on the long term. He expects markets to go higher from here on. "The current rally is clearly a bear market rally. At present, valuations are down 70-80%."

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Ved Pakash, Tata Mutual Fund

Ved Pakash Chaturvedi of Tata Mutual Fund sees Indian markets still in the woods in the short-term. However, he has a positive outlook on the long term. He expects markets to go higher from here on. "The current rally is clearly a bear market rally. At present, valuations are down 70-80%."

 

 He  sees a significant slowdown in earnings. 

Here is a verbatim transcript of the exclusive interview with Ved Prakash Chaturvedi on CNBC-TV18. Also watch the accompanying video.

Q: Does it seem like this (rally) is that much expected year-end rally and do you think it could take us a lot higher?

 

A: I think it can go a bit higher from here. This clearly is a bear market rally. Towards the end of the month and early January we will have the result season coming out and the expectations of the results and forecasts. Clearly expectations are not very bullish and everybody is expecting a significant earning slowdown. When the actual news flow comes, that will cap the upside of the market.

 

So I guess it is bouncing back from extremely depressed levels, valuations are very low many and stocks are down 70-80%. So it is bouncing back from there.  But at this point in time, given the outlook for the global economy and the Indian economy, the upside is capped.

 

Q: Do you think the fears of the market retesting its lows are out of the system or is that a fear that is still open?

 

A: The fear is not out of the system as yet. We will be going into an election period early next year, at the moment, given more definitive election results, the market is breathing a sigh of relief. However, as you go into an electoral season there would be all sorts of polls coming out and that will have its dynamics. The slowdown news for earnings growth will come around and I think there would be some more news flow from overseas that may cause concern.

 

This is really a period where a lot of positive news flows, whether it is a bailout package for the US auto companies or election results or a quiet period for global news flow, are all coming together. So, I don’t think we are out of the woods for the short-term. We are extremely positive on certain sectors of the economy in the longer-term

 

Q: How does that translate into cash for mutual fund companies? Since you are clearly not bullish on the short-term and very bullish on the long-term, are you more in cash at the moment, what are your cash positions?

 

A: Relatively speaking we have raised some cash, some of our funds maybe 15% in cash, which is high given the overall context of the fact that mutual funds normally are almost fully invested. We are gradually deploying it at lower levels, so there are no dramatic calls. A lot of the cash strategy nowadays is implemented through F&O market because moving in and out of cash stocks is not that simple. So a lot of those strategies are now implemented through either index-based futures or stock specific F&O positions.

 

Q: Was this move to cash prompted by fear of redemption or by a hope of getting a buying opportunity a little later?

 

A: We have an extremely retail based equity funds; we have close to two million investors in our equity funds. So there wasn’t a great fear of redemptions but we did see the markets being in a depressed phase for sometime and this cash was raised sometime back not. We have been deploying cash gradually in this period, it was really raised to protect the investor’s interest and in anticipation of comedown in the markets.

 

Q: What do you think the thrust of action will remain for 2009, will it continue to be the RBI and how swiftly they cut rates and increase liquidity or do you think we can expect something more sizeable from the fiscal stimuli package because the one announced a couple of days back went down as a bit of a disappointment?

 

A: I think there would be three major themes for 2009. The first major theme is the fact that there is this huge gigantic amount of liquidity, which has been injected into the global system. Right now it is not used because of lack of trust, lack of risk appetite and hence it is not flowing but that will change. This money has to flow.

 

So I think that a fairly large amount of liquidity will flow at some point of time in 2009 most probably towards the second half and some of it will come into emerging markets. I think that will be a big positive.

 

Second; commodity users will do well with declining inflation and declining interest rates, general slowdown in the global economy and a fall in commodity prices hence but commodity producers are suffering.

 

Third; elections in India is a big story. It will drive the economy for sometime, it will drive the markets for sometime and if we have a government with a definitive mandate, it certainly will be positive.

 

So it is a hypothetical scenario. So post June, if there is a definite government in power with definite policies which the market likes and have liquidity flowing and interest rates bottoming out and some revival of demand, clearly one can foresee a period of some optimism.

 

I think before that we will remain in a murky scenario and move in a trading band.

 

Q: Do you think we are more or less near the top-end of the pullback this market can expect to see or might we be surprised by the time we step into January?

 

A: I think if benign news flow continues, we may go a bit higher. Valuations of the market are lower than possibly what we have seen in the last twenty-five years in terms of forward P/E multiples for the index. Aberration may correct and the market may quote at its long-term bottom trading range of about 9-10 times forward P/E multiples going forward. But clearly the upside is capped.

 

Q: Does the volume of FII flows over the last couple of days and especially over the last two weeks surprise you – a billion dollar we have had in last two days?

 

A: Some liquidity is sloshing around and some of that is finding its way to emerging markets and to India, so I am not really surprised. The big story of 2009 will be this liquidity finding its way to emerging markets. Right now it is a trickle and it is really distressed asset buying. So I think we will see more of it in patches over the next few months. 

 

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