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Why the weakening dollar may be good for India

Published on Wed, Oct 14, 2009 at 10:24 | Source : CNBC-TV18

Updated at Thu, Oct 15, 2009 at 11:50

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Nifty

BSE | NSE 13/02/12

Are Mutual Funds betting on Nifty?

Tushar Pradhan, CIO, HSBC AMC, is cautious on markets despite liquidity remaining robust.

Speaking on earnings, Pradhan sees better earnings in H2 FY10.

The dollar has been trading weak for the last few weeks. Commenting on which countries and asset classes will benefit from the weakness in the greenback, he says commodities will gain as the dollar weakens further. "The dollar weakness will also be positive for India".

Here is a verbatim transcript of Tushar Pradhan interview on CNBC-TV18. Also watch the accompanying video.

Q: Do you see the October December quarter leading global equities and Indian equities even higher from here or are you in the camp which is calling for a technical pullback?

A: There is fundamental reason for valuing markets and there is technical reason built up on flows, expectations and sentiments. Clearly, I think the global view is that the recession behind them. However, there is enough people on both sides of this fence to figure out whether this is short-term blip or should 2010, then again show us towards the later half struggle going back to growth. The fact is there is fairly distributed economic stimulus all over the place, there is lot of liquidity and people are trying to find bargains in a market, which is not showing too many.

So when there is too much money chasing too few assets, there is some sort of overpriced momentum, which continues and this not something that can be explained by way of fundamentals. I think even globally, markets have moved up pretty significantly and very quickly. The fundamental view would be to be cautious, however, the fact remains that there is just too much money sloshing around in the system.

Q: There was a period pre-earnings where many felt that the market was playing a last lap kind of a nature to it, it looked like we were heading for a bit of a blowout, have we reached that situation you think?

A: No, in fact, in earnings there is a very different story building up and one of the data points that the Q2 of last year was good for Indian companies, especially, if you look at metals, it was almost a blow out quarter, compared to that this year, maybe just there or a little lower than that. So there might be post the results as we see them in September, some sort of temperance to the mood.

But as we go along in the second half, especially in the last quarter of this financial year, the year on year (YoY) comparison is going to be tremendously attractive because the fourth quarter is when a lot of the companies came in and reported a lot of extra ordinaries, lot of reported earnings were very subdued in Q4. On top of it, the base effect on economic numbers and the base effect of the earnings numbers for the second half, you are going to see some significant fundamental numbers, which are very positive going in the second half.

My only issue is that one has to take these numbers with a bit of pinch of salt because it is just not reflecting the fundamental story as we work around. But the point is that reported numbers are reported numbers and that might be another reason for liquidity to continue to flow in.

Q: If reported earnings are going to be strong in an environment where there is more liquidity which is waiting to find its way into assets like stocks, is it conceivable that from here to April which is when those number come out, markets might even scale higher despite valuations looking stretched?

A: We can all be very logical about this. But from my view point where we look at actual fundamentals of companies that doesn't give me comfort. But is it a possibility?- Yes, it's a possibility as much as we would like to deny it for the simple reason that these numbers are going to be pretty strong. The fact is that dollar if it continues its weakness; the international investors will try to look at non-dollar assets for diversification. One could be commodities, and the other class which drives non-dollar asset investors also is regional markets, as well as emerging markets. And if that trend continues, it is conceivable that we may see pretty strong markets in the near future.

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