See mixed Q4 earnings; FIIs still favour India: Syntel

Nitin Rakesh, President-Americas, Syntel Inc believes the recent worse-than-expected current account deficit (CAD) figures has soured market sentiment. The country's core growth dipped sharply and Rakesh feels it may scare many bullish voices in the market.

Nevetheless, he says, FIIs still continue to favour India. "Despite higher CAD, the FII flows continue to remain positive towards Indian markets and a pick up in investment demand will help to revive growth," says Rakesh. 
Going ahead, he says the fourth quarter earning season may see a mixed trend and the growth probably tilted towards three sectors namely, FMCG, IT and pharmaceutical.  Also read: Job creation down by 14% during Oct-Mar: Assocham Below is the edited transcript of his interview to CNBC-TV18. Q: We have been through another tricky series. How do you think the market will get through this entire earnings patch and whether the push is still on the lower side or we have the potential of a pull back this month?
A: The FM mentioned about various pushes and pulls that he deals with regards to currency, CAD or import-exports. All these are taking a toll on the markets. The core growth has fallen sharply and this will scare many bullish voices in the market. It remains to be seen whether we are out of the tug of war between macro and micro.
I think we are not out of the woods yet. We saw interest rates easing but that hasn’t trickled down thanks to the cut in lending rates, we need to see that happens in a much more substantial way. We need to see how we can increase investment demand. We may have a mixed earning season with growth probably tilted towards the big three, FMCG, IT and pharmaceutical. Others sectors may struggle as of now. Q: Will we get away with 5600 as a base for the Nifty or you wouldn't be surprised to see lower levels over the course of the next three months?
A: We saw good flows from the foreign investors. And despite all the fears around hot money, which looks to be the most stable source of flows for the capital markets in India. Till the time flows are good, we will be in the range of 5400-5600. I won't be surprised to see another shock from the global macro front like the European crisis which happened over the last three-four weeks, we may see some risk on the downside.
However, below certain level the valuation comfort starts to come in, so to some extent it a repeat of what we saw in early part of 2012. But there is no real trigger for the markets to move in either direction. I think the bias seems to be little more worrisome right now rather than bullish. Q: Do you fear though that after the earning season which is about to unfold the market might get even more polarized like we saw at the end of the Q3 earning season where midcaps came in with fairly awful numbers? Handful of stocks kept the index up but the broader market took a very sharp knock. Do you see that happening after this earning season?
A: Yes, it is quite possible because I think the earning growth will be very polarised and it continues to be in segments that are either already outperforming the market or to some extent are coming back into flavour like IT. If that happens, then we will be in a situation where the broader market will take longer time to recover. Last 6-9 months was good for the broader market till midcaps tanked again in the last quarter.  
On the interest rate front, we saw a good amount of correction. On the domestic macro front, all the core sectors to come back will take a longer than expected. Small flavour of hopes that came out of Tata Motors numbers on the commercial vehicles yesterday remains to be seen whether it is a flash in the pan or can it be taken forward over the next quarters as well. Q: Apart from IT, is there any other space that you would be comfortable buying into right now?
A: I think FMCG, pharma and relatively other names would be the best place to be in the market and these will provide comfort from a downside protection perspective. Q: The conundrum though seems to be that both the macros and micros in terms of earnings have not looked good yet liquidity in terms of FII flows have been quite buoyant. What is your pick there, is money remaining committed, are people still interested, what exactly is happening?
A: The Fed has worked well for almost all global markets especially with the kind of liquidity being released into the system on a continuous basis by the central banks.
This indicates that there isn't a flight of liquidity, so I said that if at any point in time over the next three-six months we see a situation where there seems to be either tightening at a global basis or for some reason there is a flight to safety or a risk aversion that creeps back in, that makes us really vulnerable. We have a very strong linkage to global flows and the domestic situation isn't same as it was five years ago in terms of India story being intact.
So, there are questions on whether the India story is really intact because growth has fallen from 9 percent to sub-5 percent and this is raising a lot of questions in the Western media as well as with large money managers. However, they are patient because the whole intent of looking at Indian demographic story and some of those things have kept the story alive. But as long as liquidity is abundant and available, we are fine but if there is a flight to safety and risk aversion, we definitely have a downside risk. Q: Would you buy DLF at current price or anything else from realty space?
A: I would actually wait and watch. These counters had a good run in last four-five months of the year. I would wait and see how the situation improves because these are high beta names and clearly the risk reward isn’t very favourable.