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Last Updated : Feb 23, 2016 05:57 PM IST | Source: CNBC-TV18

All eyes on govt's plans for banking sector: Crossbridge Capital

The Indian government also needs to help the banking sector get back into shape – banking sector is the heart of any economy, says Manish Singh, Chief Strategist & Head of Investments, Crossbridge Capital LLP.

Market analysts believe the sell off seen in the Indian equity market today was led by profit booking and global weakness and that bear rallies are prone to this kind of sell offs. The market today also underperformed its emerging market peers.

Manish Singh, Chief Strategist & Head of Investments, Crossbridge Capital LLP believes that the main reason for India’s underperformance could be that it is taking cues of what is happening in the US, UK and elsewhere, where the trend has been volatile. So, it is unlikely that India can have a sustained rally until the US Fed meet in March. However, Singh thinks it is unlikely that Fed will raise rates in March.

The market lost more than 1.5 percent on Tuesday after rallying in previous four consecutive sessions.

India, he says needs to drive itself forward and not depend on foreign institutional investor (FII) flows because in case the dollar strengthens, then FIIs may dwindle further. "For a domestic market to really rally and reflect a good valuation a lot of flow has to come from within and which is still not the case in India," says Singh.

The Indian government also needs to help the banking sector get back into shape – banking sector is the heart of any economy and more so for emerging market economies, says Singh.

With Union Budget 2016 round the corner, all eyes will be on what government plans for the banking sector and if no concrete steps are taken to improve the health of the banks then there is a downside risk for the market, says Singh adding that the damage may not be very severe because the market has already sold off quite a bit.

The house currently is not buying ahead of the Budget, he says.

Below is the transcript of Manish Singh's interview with CNBC-TV18's Latha Venkatesh and Surabhi Upadhyay.

Latha: Lately it looks like India has become an underperforming market, is that the sense you are getting, if yes why?

A: I think the Indian markets being part of the emerging market complex is taking its cue from what is happening in US and Europe. This year the trend has been a volatile trend so you are not really seeing any rally which is lasting for long because there is a overhang about what Fed is going to do. I don't think you will see a sustainable rally unless Fed really backs off. So, let us say we are looking at the March meeting, my view is that Fed is not going to raise rates but market will need more assurances for it to really rally and stay ahead else it is going to fall back again. So, it is going to be the same thing that we have seen over the last one month.

If I talk about S&P, you will see the levels of 1830-1850 becomes a buy and then people start selling at Rs 1950-2000. You are seeing that in India as well. So, I see that trend continuing.

Surabhi: When you talk to investors and friends and colleagues across and you talk specifically about India, what is the sense that you are getting because offlate this market has been underperforming other emerging markets and the margin or the gap seems to be increasing. Today was yet another one such day.

A: India will have to drive itself forward in the sense that, it just can't rely only on capital flows though in Indian markets the FIIs flow plays a very important role. I haven’t checked the data recently but what I read in one of the reports is that a lot of this FII money has flown out and therefore you have seen a fall in the markets.

For FII money to come in and stay obviously it becomes the case of is dollar strength going to be an issue and I think for some people it is still an issue that dollar strength might continue. So, that puts some other people back. However for a domestic market to really rally and reflect a good valuation a lot of flow has to come from within and which is still not the case in India.

Latha: Actually in the last one year almost every month have been FII outflow but more than matched by domestic fund inflow. So, actually mutual funds have countered the FII outflow quite ably, but that is not the point that both of us are trying to ask you. If you looked month-to-date (M-T-D) and we are 23 days into this month of February India has underperformed Hang Seng, Shanghai, KOSPI, Taiwan, Jakarta a whole host of emerging markets. Is there some fear with respect to Indian earnings, is there some fear with respect to the Budget that is making people shy away. Would you buy ahead of the Budget or even after?

A: I would not. I would not look to increase any exposure. So, the bigger picture always with India is that India has to really sort out its banking sector and it is not something that people don't know. People have talked about many times and you want to see what is India going to do about its banking sector. So, for me, for somebody who trades index, I look at overall India as a market. Within that obviously the economic story is still positive because you still believe what the government says and that there is little evidence that a ot of things are changing or changing fast enough and if I am looking for return and I have a better opportunity to invest somewhere else I would do that and I would come back at a later stage.

Latha: You want to see the bad loans receding or you want to see the government come up and put a lot of capital on the table?

A: I would like to see both. A clearer mission that what is the levels of bad loans and if you don't have a good banking sector you cannot have a good economy because that is the heart of a good economy that your banking sector and financial sector there has to be trust in it and also for them to extend good credit and proper credit to businesses that need it. So, that is at the heart of any economy, be it developed or emerging markets but even more so important for emerging market because that is where the trust comes. When you are foreign investor in any businesses sees that at least banking sector is working well and it is not in any kind of pressure or is going to see a big problem ahead.

Surabhi: If we don't get something very concrete in the Budget, some kind of an announcement in asset sale or some kind of bad bank or another major asset reconstruction company (ARC) platform or the likes then do you expect a bigger downside in the market or is that already in the price. Let us assume we don't hear anything concrete on the bad loan problem, then what happens to the Indian market?

A: I would say that there could be a downside risk but I would caveat that because I am not looking to put any new money in defence and I don't know about other asset managers but I would caveat to the point that market has sold off a lot. So, maybe you are not going to see a bigger sell off but on technicality you could see bigger sell off but having said that the valuations are cheap if you use the standard measures of valuation and if you take a view that the government is going to be constructive going forward but market really wants to hear what the government wants to do with the banking sector and how well capitalised it is and are they going to commit new capitals ahead.

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First Published on Feb 23, 2016 05:39 pm
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