Must 'reset' to new rupee level; RBI, Fed talks eyed: IIFL

After two weeks of hectic activity, the market is expected to take a breather, says R Venkataraman, MD, India Infoline. The future course of the market will be decided on the basis of FOMC policy statement on Septemeber 18 and RBI's credit policy on September 20.

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Rupee will have to find a new value and the entire market needs to reset to the new value of the currency, he says.
On specific sectors, he is overweight on IT, because it benefits from the depreciating rupee; pharma on the back of the exports story as well as the domestic consumption story; and also the textile sector which again gains from the weak rupee because of exports, plus weak cotton prices may be a big boost.
On company plans, IIFL plans to raise Rs 1,050 crore via NCD  (non-convertible debenture) issue, which has already opened today. It plans to raise Rs 525 crore as base issue and another Rs 525 crore as green shoe option, says Venkataraman. Below is the verbatim transcript of R Venkataraman's interview on CNBC-TV18 Q: What is your sense with the kind of rally that we have seen and the nature of it – do you think this is sustainable?
A: Just to re-quote you, you talked about the markets being in the state of coma or comatose. I think after two weeks of hectic activity it is time the market takes a breather or gets into some kind of a consolidation phase. If one sees from the first week of September when we had a change of guard in Reserve Bank of India and the opening remarks made by the new governor saw a big rally taking place in the markets and that coincided with some amount of good news from the rest of the world, also because we saw war clouds getting disbursed over Syria.
We saw the currency strengthening; some kind of correction happening in crude. So all in all we had a very good rally in the markets of about 10-12 percent. At this point of time, the market is taking a breather because we have two big events waiting to happen in this week.
Tomorrow we have the FOMC statement about what will happen to the quantitative easing so as to say and then on September 20 our own monetary policy. At this point in time, the market is taking a breather, taking rest and the future course of the market will be decided by these two events.
Having said that what is also happening is on the ground actually the economy is going through its own set of challenges. As reported in your channel yesterday – inflation numbers continue to remain high so we have to wait and watch what exactly happens on September 20, when the governor makes his monetary statements clear before any fresh rally can be seen in the market. Q: Just wanted to focus on the rupee and how much of an impact do you think the rupee appreciation could have for further upsides for the Nifty?
A: If one looks at the rupee there was some kind of culmination of many factors which lead to this sharp correction in the market in the last week of February. We had uncontrollable decline in the rupee so as to say and the rupee used to fall almost 2-3 percent everyday till the first week of September.
What we believe is that the rupee has to find new value and the entire markets have to get ‘reset’ to the rupee at a new level, in this 63-65 or 62-64 per USD range. If one sees the markets, in the currency markets from 1992 the point that we have always been trying to make is that assuming that first of January was a time when the rupee actually floated for the first time because post the reforms of 1991 and the rupee typically had a pattern of 5-6 percent depreciation against the dollar.
Somewhere in the period of 2002 to 2008, the rupee started appreciating and most of us forgot that the rupee can also depreciate or had forgotten so as to say lessons of history and then what happened was that from 2008 to 2012 the rupee had to catch up because India historically has been a deficit country because it depends a lot on its crude imports.
We had this period of catching up and markets do not follow a pattern when it does catching up so it always adjusts on the other side, it did that period of adjustments so now the currency is finding its level anywhere from 65 it should stabilise. We will get used to this new reality. At this point in time, the rupee is adjusting, finding its level and that is good news because the uncontrolled depreciation of the rupee was something which the stock markets could not adjust. Q: What would be your portfolio stance now? Which sectors would you prefer?
A: If one looks at our portfolio what we have been advising our investors is clearly that we are overweight on IT because that benefits from the rupee depreciation and forget the so-called appreciating rupee for the last 2-3 days because those are some kind of adjustment. We have a view for one, one and half, two years because one will benefit from the depreciating rupee, also one will benefit from the strong recovery in the US economy because that has a spill over beneficiary effect on the IT sector.
The other sector which we like is pharmaceutical because one can play the export story plus the domestic consumption story and these are two broad sectors which we like and on the other export oriented sector is textiles we should wait and watch because textile also benefits from weak rupee and also at least will benefit from a weak cotton prices which are a key raw material to the textile sector.