India remains attractive in medium-term: Kotak Mahindra Bk

The Indian market has seen strong cash commitment from foreign institutional investor (FII) in the July series, over Rs 7,000 crore.

In an interview to CNBC-TV18, Shanti Ekambaram, Kotak Mahindra Bank says, from a medium-term perspective, India remains attractive. "In the short-term, I think it's more driven by events, and sentiments," she adds. She further says, a little bit of risk appetite has come back to the market. “It is riding on the back of global risk appetite and not just India specific. Given that Indian valuations are reasonable as of this point in time, I think we got some amount of share of money as far as the risk appetite is concerned. That caused July to be reasonably strong,” she adds. According to her, banking and finance and consumer plays are attracting investors’ interest. "I think consumer plays, banking and finance is where money has been coming in," she adds. Multibagger ideas: Two stocks that can give you 25% returns Below is the edited transcript of her interview with CNBC-TV18's Latha Venkatesh and Ekta Batra. Q: It is now getting to be a little clear that the governor perhaps will not oblige with a rate cut. Will that make a big difference to the market? A: Not really. If you look at the inflation, while 7.25% may seem lower than what the estimates were, CPI is still in double digits. With monsoon looking weaker than what it is expected to be, I think it will certainly have an impact on food prices and thus inflation. Inflation is still looking sticky. Secondly, I think RBI Governor has clearly mentioned that they expect some fiscal measures. So far, no fiscal measures have happened, maybe upto July 31, we will see some steps are taken. So, for now, we are not expecting a rate cut. I think most people in the market by now would have got it pretty clear that possibly there is no rate cut on July 31. I don’t think it is going to make that bigger difference. I think larger other measures would make more of an impact than this. Q: We have seen quite a strong cash commitment in the July series of over Rs 7,000 crore, what are you making of the foreign institutional investor (FII) inflow and the mood at this point in time for the market? A: There are two-three things, if I may attribute to. Firstly, a little better feel on Euro zone has stoked some amount of risk appetite. Second, as far as India is concerned, there is a hope that perhaps some measures will come in now that the prime minister is also the finance minister. I think one is expecting that post this Presidential elections there will be some amount of measures whether it is on some dilution of GAAR, whether it is on FDI in retail, whether there are some other reforms. Some positive fiscal measures and some amount of reforms are expected. I think a little bit of risk appetite has come back to the market. My feel is that it is riding on the back of global risk appetite and not just India specific. Given that Indian valuations are reasonable as of this point in time, I think we got some amount of share of money as far as the risk appetite is concerned. That caused July to be reasonably strong. _PAGEBREAK_ Q: How much of this is riding actually on the hope that the new finance minister will perhaps deliver more? There are some in the market who believe that next week could be a make or break week, post the Presidential election, this much awaited hike in diesel prices even a token one is not announced, there could be some sever damages in the market. Do you think that’s possible? A: There is certainly hope as of this point in time. I think one sees positive body language and positive vibes. So, certainly there is hope. It is not just India, there was a little bit of positive boomer because of little bit of Euro zone worries also ebbing a bit. So, I think it is both global as well as local. But I think if nothing happens, let’s say for the next three weeks or four weeks or whatever, I think there will be some dampening of enthusiasm. I think the market is hinging on hope and there will be some amount impact certainly on sentiment. Q: If you had to recommend an asset allocation strategy at this point in time, how much exposure would you recommend to equities? Within that, which are the spaces which you would possibly recommend most exposure to? A: It’s very difficult. Asset allocation is very specific to individual, to different companies. So, I’d say if you look at where money has been coming in terms of sectors, it’s been banking and finance and consumer plays. So, I think consumer sector, consumer plays, banking and finance is where money has been coming in. Second, I think investors are also looking at large liquid plays. Till uncertainty goes away, people are preferring to be in large liquid counters. But from a sectoral perspective, I think these two sectors are gathering a pretty much amount of interest from investors. Q: What are you seeing by way of foreign investor or for an appetite for Indian paper? Do you see a goodish bit of appetite for Indian debt? A: Honestly, India is not the flavour internationally. It has not been for the last few months. However, from a structural medium-term perspective, India still remains an interesting market. I think most companies abroad strategically will not bypass India. So, to that extent, there is Indian interest. On the credit side, I think there is muted appetite because many companies and many sectors are going through a very tough phase, for example, the entire infrastructure pack, the core sector. These industries are going through a tough time. So, I’d say that there is interest for good companies, better credit quality and underline robust financials. Some sectors are undergoing a challenge. India, from a medium-term perspective, remains attractive. In the short-term, I think it’s more driven by events and sentiments. _PAGEBREAK_ Q: Do you think that the NPL issue is fairly priced in by the market? There was a whole lot of angst earlier from December to January about what we might see. There is daily evidence of one company or the other asking for CDR. How much more will the pain last? Has the pain been correctly assessed by the market or are we going to get some shockers? A: I think there is still a fair amount of pain left in the system, but it really depends upon some amount of policy action. Coming in of equity to the core sector can reverse some of that pain. So, as we stand today, I think a lot of pain has come in, market has recognised that and priced that. In the next 6-12 months in terms of a) ability of some of the sectors to receive money b) policy bottlenecks which will ensure projects get executed will go long way in determining whether the banking system has to take more pain or whether some of these will ease because of policy measures. So, power is a typical sector, as far as that is concerned and including some amount of other roads and where there are infrastructure bottlenecks, some of those are eased. I think things could look better. Q: What have you made of earnings season till now? What would your expectations be going forward? A: I think earnings expectations in this quarter have been muted. Market expectations have been muted. I think it’s more or less in line. In any case Q1 is always a muted quarter as compared to the others. So, I think it’s seemingly falling in line with expectation so far. Q: What's your sense of the rupee, worst is over? A: It is difficult to predict as always. I think it’s playing in the range. For example, oil has started moving back again. That’s not good news for us. Despite oil falling off, rupee was pretty weak. So, I think both global and local factors are too volatile at this point in time. So, the range is seemingly set. If you look at the range of the rupee, it’s being ranging between 54.5 and 56. I think the range seems to be set. I think it will take some more fundamental moves to sort of see where the rupee can in case it begins to appreciate. But otherwise it seems to be pretty much within this trading range of 54 to 57. That’s where it seems to be trading. It is likely to be volatile.