Right policy measures can get India GDP back to 7-8%: F&C

Jeff Chowdhry, Head-EM Equities, F&C Investments, says the market is now attractive considering all the bad news to the currency and on the macros over the last 2-3 weeks.

He says as long as the new RBI governor is willing to implement some measures and the correct measures are in place, it will be wrong to say that the economy cannot go back at 7-8 percent. He feels the currency at this point in time is fundamentally undervalued.
Chowdhry told CNBC-TV18, the banking sector is likely to suffer from rising non-performing loans (NPL), particularly in the consumer and retail sector. He says the share prices of companies like ICICI or HDFC Bank, which are fundamentally very strong companies, have priced in a lot of bad news.
He sees a rise in retail NPLs and some of the weaker banks and perhaps some of the public sector banks probably will suffer more not just in terms of the NPA outlook, but also in terms of their share price. Below is the verbatim transcript of Jeff Chowdhry's interview on CNBC-TV18 Q: You have been a seasoned watcher of the Indian skies. We have seen more and more GDP downgrades coming in. Are you getting a sense that there is a further pressure on the equity markets to discount these or at 5 percent GDP growth are we pretty much discounted the bad news?
A: The simple answer to that question is the market is now attractive. I have been cautious with the market for the last few months, particularly to the currency and on the macro, but I think a lot of the news that we have had in the last 2-3 weeks, i.e. the bad news indicates to me that the market and the currency is now attractive at this point in time. Q: Do you see growth? We have had some fund managers on the channel saying that India's long-term valuations of 14-14.5 times should perhaps be questioned now because this 5 percent GDP growth does not look like a one year or a two year problem, it could linger.
A: A lot of people said the same thing during the global financial crisis in Europe and the US in 2008 and 2009 and people would say that the European economy and the US economy would never recover. It does require the new central bank governor to implement some measures, but to say that the Indian economy cannot go again at 7-8 percent is incorrect as long as the correct measures are in place. Q: A lot of market participants believe that even if there is any rally in the Nifty or the Indian markets and if it is not substantiated with an improvement in the rupee then that rally will be short-lived. In that sense do you think that the rupee is a key parameter to track now and only if there is recovery in the currency will there be recovery in Indian equities?
A: I think the whole story is slightly circular. The first phase from everything I have seen and read, the new central bank governor is clearly being well regarded, so that is a great step. The second thing is he has to follow through on similar rhetoric and similar discussions that he has talked about.
What we have seen is for very, very short-term over the last couple of days the rupee has stabilised. The rupee at this point in time is fundamentally undervalued and cheap. All it really needs is restore stability and strength in rupee. So the rupee is key, the currency at this point in time is fundamentally undervalued. Q: There has been a lot of bashing of finance stocks. The argument is now getting extended to even private sector banks which at least so far have not reported a large increase in bad assets, but the expectation is that they will start doing that. Do you expect further losses in the banking space or do you think even there the bad news is priced?
A: There are two parts to it. It is the fundamentals and what is being discounted in the market. The fundamentals are that the banking sector is likely to suffer from rising Non-Performing Loans (NPL) particularly in the consumer and retail sector. The other thing to say in relation to that is that is not new news.
It has been talked about in the market for the last few weeks and it will continue to be talked about in the market. If you look at companies like ICICI or HDFC Bank which are fundamentally very strong companies and you look at what the share prices have done in last 1-2 weeks, fundamentally the share prices have priced in a lot of the bad news. Q: So what you are saying is you are likely to see NPLs in the retail space for these banks now?
A: Yes, I do see a rise in retail NPLs and I think some of the weaker banks and perhaps some of the public sector banks probably will suffer more not just in terms of the NPA outlook, but also in terms of their share price. The key message is be selective. About a month ago I was saying the market is going to correct another 10 percent, we have had an almost 10 percent correction and rupee weakness. So, from a foreigner's perspective, the Indian market is now very attractive. Q: I do not know if you have been spotting that some of these high Foreign Institutional Investor (FII) owned stocks, names like ITC, Tata Consultancy Services (TCS), Sun Pharma etc. have started to see some correction in the last couple of days. Do you fear that if there is a next leg of a downside in the Indian market it could be led by some of these erstwhile very good performers because of FIIs moving out? Since you are one of those are long-only funds getting tired of India?
A: The simple answer to the second question is, no. We are not tired of India. We have been here for a very long time and we will continue to be here for a very long time. In terms of the first question, inevitably if you are looking at your portfolio and if you are looking at stocks which have done really, really well and you want to take some profit then the TCSs and the ITCs are inevitable the place to look. What I do see is actually more of a kind of a rotation rather than money going out in any meaningful way.
So when I look at my portfolio and I own the stocks that you have just mentioned, the reason why I am cutting them is because there are so many other stocks on the other side which are very attractive at this point in time, particularly in the banking and financial sector.