Devesh Kumar of CIMB feels that there could be some policy action from the government now that the Parliament has been adjourned. He feels most of the key policy decisions were taken when the Parliament was not in session. He also believes that the current rally in the market is due to the foreign fund flows.
Devesh Kumar, India Head, CIMB feels that we could see some policy action from the government now that the Parliament has been adjourned. Kumar’s reasoning is that most of key policy decisions were taken when the Parliament was not in session.
In an interview with CNBC-TV18, Kumar said that the current rally is being driven purely by foreign fund flows because of the bullish mood in global equity markets. He sees discretionary spending by consumers slowing down a bit, but does not see it as a major concern. Kumar sees many companies restructuring themselves over the next 12-18 months.
Below is the verbatim transcript of Devesh Kumar's interview on CNBC-TV18
Q: We had a fantastic run this month, 10 percent rally for the index. How much more would you give it and how are you calling this current move?
A: This current rally is fueled by one, global liquidity which is flowing into this market and two, on commodity front crude, gold, we have seen some softening of prices both of which help India’s current account. So these two things have propelled us good.
Going forward at Sensex level or Nifty level, lot of things may not happen but a lot of action would be there at stock levels because next 12-18 months is a phase where Indian corporates will be gearing up for the next round or growth and a lot of restructuring would be happening. Due to the balance sheet stress, lot of companies will have to redefine their businesses so Indian corporate landscape is going to look very different in 12 months and that is where a stock picker will do a better job than someone who chases index.
Market forces have forced government to come out with a lot of policy initiatives so there are two levels of initiatives, one, consensus in parliament is required where there will be a slow move. Second, where at department level action can be taken, bottlenecks can be removed and that is where we feel there will be lot of action. The foreign capital, waiting outside, will find it easier to move into India and for that some announcement will come because a in the meeting with government, a lot of people have mentioned that flows need to improve and for that the entry norms have to be made a bit more easier.
Q: What are about the nature of these inflows? Is it the emerging market group within which India is beginning to pull more money or are you hearing of country specific funds beginning to get money? What exactly is the nature of the liquidity?
A: Currently, it is more of exchange traded fund (ETF) led and India is getting slightly more from emerging market kitty because people know that India's external side gets destructed by crude, gold and such imports and some improvement is taking place there. Lot of this money is not coming because there is conviction that Indian growth story is going to come back. When that conviction comes, it will not come only to foreigners, it will come to Indians also and there will be more retail activity.
When we see a lot of mutual fund raising in India, India specific funds overseas will also be able to raise money, that is not the case at this point in time. So currently, whatever flows we see is because people are seeing external sides improving a bit and ETFs from there money is coming into India. Global liquidity is improving and that is also benefitting India at this juncture.
Q: On Thursday, we saw weakness in the discretionary stocks because of disappointing earnings from Asian Paints, Jubilant Foodworks. Do you think there is some protracted slowdown in the consumer discretionary space and how would you approach that pocket now?
A: Inflation has impacted people’s wallets and so far we were not noticing it but over next one-two quarters, we may see this happen. When you take a longer term view in India then discretionary expenses will have to go up and this will now happen once the economic activity picks up. So in the interim, whatever we have seen in last eight years of continuous improvement in discretionary expenses may slow down a bit but it will not disappoint in a big way.
Q: Do you think this market has more headroom on the upside in terms of this rally getting extended further or do you think the market could enter some a consolidation phase?
A: It will now consolidate around the present levels, three-four points up or down. But if in days to come some more policy initiatives are announced which eases inflow of money, then that will bring a new class of investors, new set of investors into the market.
We are watching carefully and have found that when parliament is in session then there are fewer announcements, when parliament is not in session a lot of activities take place. So after the session, we may hear some more tweaking in policies where parliamentary approval is not required.