Expect 2013 second-half to be better for market: Madhu Kela

The second half of 2013 is likely to be better than what the first half has been for the stock market, Madhu Kela, chief investment strategist at  Reliance Capital said on Thursday.

Speaking on CNBC-TV18, he said that while the first quarter's optimism was over done, the current skepticism in the market is also overdone. "We have talked about USD 6 billion outflow in the last three weeks and the market has got so jittery just by the USD 6 billion outflow. I just feel that this talk of complete withdrawal from the Fed might just be little premature because if you see globally there is no sign of inflation anywhere in the world so why should there be any abrupt withdrawal of the Quantitative Easing," Kela said.  He sees Nifty trading in 5,400-5,500 range in the next one months and still feels there are stock specific buying opportunities in the market. Below is the verbatim transcript of his interview on CNBC-TV18 Q: It has been a difficult couple of weeks; do you see the pain getting worse? A: When we met last time in January, the situation and the mood was upbeat, people were talking of new highs. However, my opinion was that this optimism is little overdone and we might see a period of consolidation. Things have worked out the way we panned out. Today, the mood is exactly reverse; there is lot of skepticism around the market. At that time we had a huge problem of fiscal deficit, on whether the government will deliver or not. We had a huge problem of inflation, and also problems on whether the interest rates will be cut or not. We also had an issue whether diesel and petrol prices will ever be hiked. All those have reversed in favour of the market. It is very difficult to pinpoint the last 200-300 points in the last one-two months but I broadly feel that the second half of this year will be far more positive than what the first half has been. Q: The only joker in the pack for that argument is liquidity. In the first half we were all talking about how the macros were poor but the market didn’t crack beyond a point because of billions of dollars we were getting in. Now, we have only just started seeing what the impact could be of any potential outflow. Would you still be as confident so as to say that may be we are near the bottom of this losing cycle? A: This is little premature, little overdone in my opinion because if you see in the context, USD 300 billion came into emerging market (EM) debt funds in the last three years and USD 175 billion have come into the EMs in the last 18 months or so. Now, we have had USD 6 billion outflows in the last three weeks, and the market has got so jittery just by the USD 6 billion outflow. I feel that this talk of complete withdrawal from the Fed might just be little premature because globally there is no sign of inflation anywhere in the world, so why should there be any abrupt withdrawal of the Quantitative Easing (QE). Moreover, in the last three-four months, we have been joined by Japan with USD 60-70 billion of additional QE. When we are talking of global liquidity drying up, the market is reading a bit too much, too soon. My own view is that it will be little while before all that goes away. Q: What sense do you pick up when you speak to companies because companies are still not firing on all cylinders - forget investments, even earnings growth of regular companies is not good. Now balance sheet pressures might start to mount with the way the currency has moved. Do you sense confidence from them as you look forward the next quarter or two, or are they still in very apprehensive mode? A: The answer to that is decisive no. We feel this is strictly a stock pickers market. I am not suggesting by any means that this is going to be a roaring bull market. I am just saying that we have had a lot of pessimism in the last six-nine months and sometimes we forget in the context of what had happened in the last four years. Yesterday, I was looking at the top-20 companies in 2008 which were there have lost Rs 20 lakh crore of market cap in last four-five years. This is a very staggering number but when we look at last three six months we try to extrapolate the pain again and again.  I just feel that this is going to be a stock pickers market; you have to be very careful about the stock which you choose and the investments which you make. Broadly speaking there are few companies which are going to be beneficiaries of what is going on. Don't forget that the overall opportunity in India still remains very large in all sectors but 50 percent or more people are only focused on cleaning up what they have committed in the last four-five years. Hence the opportunity basket for the remaining people who have not messed up themselves has become enlarged and that is what you are seeing in the market place.
 
I think this is a new normal and we have to remain very stock focused when we are investing money. Q: The problem with this market is the narrowness of it. Frankly even in this strength we have seen so far it has been such a narrow clutch of stocks whether on the index or outside that have supported any gains of seen any gains for themselves? A: That is the reality of the markets, we cannot wish that away. Lot of companies which have done allocation of capital or have had their own set of problems because of the external environment has completely been out of favour by investors. However, one has to look at which are the companies which are not completely destroyed in the sense of balance sheet and business model. When I see  some of the small and midcap companies, it reminds me days of 2003 and 2004; there are so many companies now available at 2-3-4 P/E multiple and there is absolutely no competition to buy these companies today. No one wants to look at them, no one wants to review them, and no one wants to have any interest in them. I am sure that two-three years down the line, lot of winners will emerge out of that space and that is what my excitement is. _PAGEBREAK_ Q: Do you see the rupee having changed some of the macro improvement that you were talking about earlier? From a macro and from a micro perspective could that be the one swing factor, which has come in the way of the improvement that the stock market was responding to? A: Yes, I think so. We had the view that we could see 60 to a dollar, and we are somewhere near there. Again today, now people are making prediction that rupee may go to 70-80/USD level but my feeling is that we are done for now. It is very unlikely, and I will be very surprised if rupee decisively crosses 60-61 level unless and until something globally gets messed up. What the rupee has done actually is, it has delayed the recovery and has clearly caused lot of problems for people who are dependent either on foreign debt or people who are importing. However, there is other set of the market which clearly benefits out of this rupee. For domestic people who have borrowed money in domestic terms or some of the borrowings which have got shifted, they are not as impacted as the people who are in the other basket. So looking from a stock bottom up perspective you will find opportunities in the market and you will find people and businesses and companies, which are not impacted by the rupee swing. Q: Early this morning we were speaking to some global technical analysts who were talking about the 5,500 Nifty support. If violated they felt that the Nifty could go down once again to retest 5,100. What kind of probability would you assign to these kind of numbers? A: I am not a technical analysts but I feel that 5,100 looks very difficult but can the market go to 5,400-5,500 in the wake of this global volatility? That is possible over the next one, one and half month. We must not forget that the next quarter numbers will be fairly challenging; there are lot of one time write-offs which will come in lot of companies because of this foreign exchange fluctuations. Even the last quarter had not seen any magical recovery on the ground. So if the question is over the next one and half months can the market go down another 200-300 points? That is possible but I will view that more as an opportunity to buy what I like rather than getting panicked about it. The other point is that volatility is going to increase tremendously and that is exactly what has happened.  The volatility is here to stay because on one hand people say that QE is very good for the markets globally and on another day people say, that all this amount of money which came in the EM is likely to go and this will cause a lot of volatility. I think people who are in active money management business like us; we see this more as an opportunity rather than a threat because in these volatile times you get stock prices down 30-40 percent. Q: Was that a 100-300 points down on the Nifty? A: Last 10 days Nifty has lost 400 points so over a period of time, it is entirely possible for us to go to 5400-5500. Q: You know that a big competitor for equities has been gold for many years now. What have you made of the trends on gold, more specifically the impact that has happened then on some of these gold based companies, the gold finance companies? A: I have a very strong view on this. The best time for gold investors and gold investments has gone in the past, and is not ahead of us. I feel that there was a huge fear in the last few years on whether Europe will break down, whether America will go belly-up and lot of global uncertainties. Lot of that fear caused significant appreciation in gold. Those fears may not have evaporated completely, they have subsided quite a lot over the last 12-18 months, which is what is reflected in dollar price of gold. I think what the RBI is doing and very rightly so, putting lot of curbs whatever they can do in terms of consumption of gold in India. The latest thing they have done, which is putting this 100 percent margin on gold imports and this will certainly go a long way.
 
I was talking to someone yesterday, and he said there was Rs 30,000-40000 crore of direct/indirect credit which was available for gold trade and that has suddenly come to a halt. If you see and speak to people at the ground, last 10-15 days actually gold demand has been very subdued if not collapsed completely. I would feel these steps taken by the government of increasing the import duty to 8 percent, and  squeezing the credit out of the gold market, will go a long way which is very good for our country and markets.