Mkt lacks trigger, may react if House disrupted: HSBC India

The winter session of Parliament is set to begin today. After a disastrous Monsoon session, another washout could prove to be detrimental for the market. Jitendra Sriram, managing director & head of research, HSBC India, in an interview to CNBC-TV18 says he doesn't expect a no-confidence motion but says a market plunge is likely if walkouts and ruckus takes place in Parliament.

"If in the first couple of days you see same kind of ruckus and the same kind of lack of activity coming through then I think the market might view it negatively and take a southward move," he adds.

Also read: Top 10 pending Bills to watch out for in winter session of Parliament Below is the edited transcript of Sriram's interview to CNBC-TV18. Q: What are your expectations from the Parliament session starting today? What can it do to the market?

A: The market is going to be volatile. I do not think there is any threat to the government because the no-confidence motion does not seem to add up on the map. From a stability perspective, I do not see any kind of an issue for the incumbents at this point of time. However, ever since mid-September, there has been this huge momentum or noise about reforms and a lot of it hinges upon whether work gets done in this winter session of Parliament. The last three-four sessions have been complete washouts with majority of work being held up due to walkouts and empty house. Now the key thing is going to be the passing of some of these critical bills. If in the first couple of days you see same kind of ruckus and the same kind of lack of activity coming through then I think the market might view it negatively and take a southward move. Q: You expect the rest of this calendar year to remain quite rangebound. Your approach for the tail-end of 2012 is that there is not likely to be too much market movement? A: Yes. In our view, India has seen a disproportionate share of flows across the Asian markets. At this stage, one might probably see a much more consolidation phase. We expected results to be a kind of a report card, a kind of a stabiliser for the market after the euphoric run-up of September this year. It clearly led to a kind of a tempering effect. Given the kind of flows that India has already witnessed, you may need to see some period of stability before it again moves up. I think the next couple of triggers are going to come when the RBI, eventually, does act in terms of easing monetary policy or if we see the growth accelerating beyond the six percent mark.  Those are the kind of triggers that will probably let further capital to come in. So, that is going to remain critical and at this stage, given the valuations, I would probably say that we are set for a stage of consolidation. _PAGEBREAK_ Q: The other issue which might have just led to flows slackening a little bit over the last few weeks is the way the rupee has come off from 52 to 55/ USD. Do you expect this weak trend to continue which might create a few hiccups for global investors? A: I wouldn’t say that for the longer-term. Clearly, we do see flows coming towards the emerging markets being far more robust. However, the last couple of months have been very buoyant. India’s current account deficit  (CAD) still remains a worry and it is obviously going to consistently put pressure. There is only a limited extent to which you can open up debt sources because that does tend to raise the risk of the profile. So I think RBI will be quite cognizant of that. They will not go for an unabated opening up of the debt limit whether on the corporate side or on the sovereign side. Q: You have upped your market target for the next year. Is that premised on what happens globally? Or do you think some of these local cues like the Reserve Bank of India (RBI) will begin to move and that is what will take the market to your 20,000 target? A: There are two things that need attention here. First is the fact that even since 2007-2008, the big story has been of India de-rating. It has been because of an expansion of cost of capital or you can say it is partly because of a slower growth because GDP growth has contracted from close to 8.5-9 % range to about sub-6 % right now. So from that perspective, there is clearly some kind of a de-rating that has happened. It is not that the Sensex earnings in absolute term has come off. Infact, on the contrary, we do see that it has grown, although at a slower clip than whatever it has been in the past. The Sensex will probably post earnings of between Rs 1,370 and Rs 1,380 for next year. This is the estimation of FY14 over FY13. From that perspective, it is a growing market. So from a valuation perspective, clearly there is only a limit to which we see the de-rating happening in the market. Also the economy is bottoming out. From an economics perspective, we are saying that till about Q2 of next calendar, which means somewhere till about June quarter, is when we will probably see this kind of a sluggish growth. We do see growth accelerating beyond six percent mark on a quarterly basis post that. Also, inflation will probably come below that eight percent on a sustainable basis. So both these triggers put together is what makes us slightly more constructive about next year. _PAGEBREAK_ Q: How do you position your portfolio right now given this view? Do you still stay slightly defensively oriented with high quality and not move down the quality ladder? A: I think the market has been very polarising in what it has rewarded and what it has punished. Debt has clearly or overleverage companies  have clearly got punished badly. Now, one part of that rectification process can probably start once monetary policy starts easing, but at this stage, I would still say that solid cash generators, high return companies are clearly preferred. So, whether it is consumer staples or discretionary private sector banks those are pockets that we continue to like. Infrastructure is clearly the big policy push. Infact, if the India story needs to pan out, it needs to be at the most cyclical component which is the investment side of it. If that is going to be the key focal area of the government or the monetary authorities to try and turn around and try to fix things, I think selective exposures to the infrastructure sector also needs to be considered. We have certain names on infrastructure side also that we like. There are certain pockets, which we think will take more time to revise, but there are certain pockets that we think are probably a quicker fix and those are the pockets that we will continue to back.

Q: You are neutral on IT. Up until now, that is a space that is negative. What is it that is making you more optimistic on IT? A: We were much more positive on IT. The reason is probably that now, the government seems to have the steering wheel and it is willing to operate it. From that perspective we do think that from a rupee perspective you are not as negative. We used to be closer to 58/ USD over a one year timeframe. This has has now changed to about 49/ USD for next year-end. So from that perspective, the rupee might be a little bit of a headwind for IT, because we do think that next year, hopefully,  as the economy turns and as inflation comes under control, one might see better support for the rupee coming in. So, that is point number one. Second is clearly, the much more anemic growth that one is seeing in the US. Also the kind of pressures that are coming on offshoring, it might make the US grow slightly weaker in the near-term. It will grow but not be at the same clip. The bulk of the offshoring needs to be done from the Banking, Financial Services and Insurance, (BFSI) space. We do not see the same kind of growth rates continuing in future as they did in the past. From that perspective, we are much more neutral in IT now, than what we were earlier.