Indian rupee opened lower at 56.54 per dollar on Monday. Gopi Suvanam, Founder, InvestWorks expects it to touch 62/USD over the next couple of months.
Gopi Suvanam, Founder, InvestWorks expects rupee to fall further and touch 62/USD over the next couple of months. In an interview to CNBC-TV18, he said one could not rule out the possibilty of de-correlation between the Indian currency and markets, so when the rupee depreciates equity markets may rally simultaneiously.
On sectors,. Suvanam is bullish on private sector banks and fast moving consumer good (FMCG) stocks, but is slightly bearish on auto sector. His prefered pick from the sector is Maruti.
Below is the verbatim transcript of his interview to CNBC-TV18
Q: It has not been the best month of May for us if you take into consideration the way the rupee has fallen and what this market has done in dollar terms. For the month of June, what is your prognosis?
A: We started very good and then last one week has been really bad. Dollar has appreciated much more than what we had anticipated.
June, I don’t think would be very volatile as May was. Most fund managers are looking to take a vacation because it is a start of summer in Europe and US. So, they are more concerned about temperatures of holiday locations than on equity indices.
I don’t think June will be really volatile. What I am considering is maybe a slight uptrend, but not to a very large extent. Maybe downside is also capped.
Q: What kind of sentiment negative do you think that the rupee is currently plaguing or doing towards the markets at this point in time and how worried would you be about a significant downtrend or correlation on the downtrend now?
A: There are two things playing around here. One is dollar strengthening and second is domestic factors that are driving the rupee. So, from the dollar strengthening perspective it is going to continue for some more time. The domestic factors would largely depend on government policy, etc.
So, broadly the rupee could continue deprecating for some more time and maybe even touch values of 62 over the next couple of months. However, that should not deter market from rallying.
There could be some amount of decoupling because some of the dollar strengthening is not because per se emerging market (EM) weakening, but it is purely a supply demand tactic. From that perspective there will be a de-correlation between rupee and the markets. We could see rupee depreciating and at the same time equity markets rallying.
Q: How you would approach the auto stocks now? The sales are really disappointing for the month of May, but then again we have seen good earnings.
A: I would still stick to Maruti, primarily because there is some more way to go for the yen. Tata Motors, although it has shown reasonably good levels, good values in terms of its profitability numbers its European arm may not do that well going forward.
As we all know that Europe is not recovering as fast as I would expect. M&M has its own problems because of commercial vehicle slowdown etc. So, I would go with Maruti in that space.
Q: Would you have a view in terms of Sun Pharma because there is a little trepidation emerging that maybe if they do bid for Meda Pharma it might change the balance sheet of the company quite significantly for the long-term?
A: I am in general positive about pharma sector. It is sort of a defensive that people could play around with. However, Sun Pharma it is highly news based. So, I don’t want to take a call at the moment.
If an investor is looking to build a defensive portfolio then definitely Sun Pharma should be one of the picks to add in the portfolio.
Q: What are your top picks from the earnings season?
A: My top picks would be again private banks, which is one sector I think would outperform going forward when rate cut start to pour in. I am slightly bearish on the motors at the moment and consumer durables.
However, fast moving consumer goods (FMCG) is another sector that I want to look at investing and building some portfolio into.
Q: Did you manage looking at the Purchasing Managers' Index (PMI) data that came out earlier in the morning, where the PMI data came in at a 50-month low for India?
A: Yes, PMI data in India is indicating a slowdown in manufacturing sector, so does the gross domestic product (GDP) data that has come out on Friday. People can interpret it in two ways. One way is that say that the economy is slowing down and say that the stock markets would follow suit and go down.
However, I want to look at it as an opportunity where Reserve Bank of India (RBI) and policymakers can take up. They can take some corrective measures like rate cuts by RBI and also some preventive and corrective measures by the finance ministry, so that could lead to certain growth.
I think a slight negative of PMI has already been priced in and the number that we have seen would only be positive. That would incentives RBI to go ahead and do much more rate cuts than people are expecting at the moment.
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