The anatomy of the fall in the stock market is macro-driven and hence all are going down together, says Nandita Parker of Karma Capital. It is, therefore, a good time to buy, she says.
According to her, once the US Federal Reserve meeting is out of the way, a lot of the uncertainty in the market will abate. She also says that India is a big beneficiary of everything that has gone wrong with China and the fall in energy prices.
Post the Fed meet, as more clarity emerges on the global scenario, the Reserve Bank governor Raghuram Rajan will also have the liberty to lower rates.
Additionally, increased government spending due to the 7th Pay Commission and OROP will spur demand ahead due to rise in discretionary spending. Parker says India is in a unique position and there is a need to stay focussed on domestic demand.
Below is the verbatim transcript of Nandita Parker's interview with Latha Venkatesh & Sonia Shenoy on CNBC-TV18.
Latha: Are you buying at this juncture. Is it looking to you that stocks have reached attractive levels?
A: If you look at the anatomy of the fall, it's largely macro driven, right and so there is almost 100 percent correlation in the stocks and they are all going down altogether and so this does present a nice buying opportunity. I would say that in terms of a catalyst - you were earlier alluding to the lack of confidence that people might have in buying. I think that once the Fed meeting is behind us, we will see little bit more uncertainty out of the way and that might give the market some succour in terms of where it is headed.
Latha: Is there anything in the global markets that you would look for to clutch. Would you want the, for instance the Chinese market to steady, would you want the Nikkei to steady, would you want any of the other bigger markets to steady before you start buying India or would you start buying India per se on its own valuation?
A: India is a big beneficiary of everything that has gone wrong with China and the commodity cycle. If you look at the savings, in fact the government has had in the first quarter; these are very significant numbers. So the estimate is in terms of gain from indirect taxes side it could be 1 percent to 2 percent of gross domestic product (GDP). If this money is not hoarded by the government and spent over the next nine months - that's a big deal and that is a very big driver of growth for the economy for the rest of the year. Second, if you look at real interest rate and you (Latha) have been one of the people who have been telling Governor Rajan that at this point we have real interest rates of 3-3.25 percent where his own target was 2-2.25 percent and something around that level. So there is plenty of room now for him to cut interest rates and my sense is this would probably happen very soon after the Fed meeting. Once that is out of the way, from an India standpoint we have this event to look forward to and that will give also global investors a lot more confidence of returning to India and that will set the ball rolling.
Sonia: But at the end of the day, India is a part of the global pie and we have seen a global growth slowdown exacerbate in the last 15-20 days, don’t you feel that global markets could perhaps get into a bear market phase dragging India with it because that is the fear that many people are now talking about?
A: We have already seen the impact on our commodity sector of global growth slowdown. However, if you look at some of the sectors that are doing very well because of the currency depreciation, IT services, it is still standing and I don’t see a difference in IT spending in the past 15 days from two months ago, so there is no decline there. Pharmaceutical story holds, textiles given the depreciation again along with the yuan - we are pretty much positive here. So I would not look too much at that. I would say, domestic demand - stay focused on that, look at what is coming down the pipe in terms of the government spend, look at what is happening, what will happen in January because of the pay commission, salary increases now the One Rank One Pension scheme, more spending because of that. So I think at this point, India is in a unique position globally and we should take a deep breath and focus on that because it is something that I haven’t seen in the past 20 years of India standing out on its own. So I think let us focus on that and in terms of buy levels, somewhere here and there, I wouldn’t be able to put it out to you but we are certainly closer than we were a few weeks ago.
Latha: I understand you have a Karma STAR - a long/short India Equity Strategy and you have a Karma SELECT - a long-only India Equity Strategy. In your long/short, what is your net short?
A: I won't be able to give you that but I will say that we have considerable cash levels which we are deploying.
Latha: In that case where would you deploy sectorally. If you can tell us stocks, fine, but would it be the auto ancillaries which we were just discussing, looked so attractive, some time back people were chasing them and now they are getting dumped. They are still higher on year-on-year levels. Would any of those like Motherson Sumi Systems, Bosch, Amtek Auto, Bharat Forge. Would this be your area of interest?
A: Across the board, I am going to go back and buy everything that I took profits in a month ago. So as far as my thesis are concerned in the stocks and the sectors that I hold that hasn't changed whether its autos, consumer discretionary, pharmaceuticals, IT services, housing finance companies are the areas to go.
However, What I would advise people to do is look at their holdings a little bit more closely; see if there has been any change from a fundamental standpoint or is it just the selloff that is spooking you and then take this opportunity to realign your portfolio. If there is something they see in Bharat Forge because of the US tracking market, so maybe reduce from there and add to something else that has fallen as much or maybe more because from a fundamental standpoint - and I think this is a great opportunity to do that. It's a question what you held. It has certainly shaken investors out of their complacency and so take a closer look and go back to good old fashion stock selection.
Latha: Let me take two sentences that you said, "I will buy what I sold just now and I expect Raghuram Rajan to have a lot of room to cut", so putting that two together would private banks be any of your favourites?
A: Some of them yes.
Sonia: What do you do with a stock like ICICI Bank now because over there, it is confusing whether it is bank related or whether it is the sentiment as a whole? What is your thesis?
A: I don't want to comment on one stock but I would say one thing to you that banks in general act as a beta on the long side as well as on the short side and to that extent, their fall is completely explained by the amount of selling that has taken place in the market.
Latha: Do you play public sector banks as much as a beta play?
A: We have in the past bought public sector banks when we thought that things were on the mend where I sit now, I don’t have that level of comfort.
Sonia: How much cash should someone deploy now?
A: I think gradually over the next couple of weeks one should deploy as much as you can?
Latha: You aren't seeing too much by way of rupee depreciation from current levels?
A: Probably 2-3 percent more from here, not horrendous amount now. Not where things are today. Let me preface this by saying that the data that we have today, the information that we have today leads us to certain conclusions. If there is a systemic failure somewhere or some event happens then obviously one will have to re-examine.
Latha: Since you spoke about rate cuts, would any of the fast moving consumer goods (FMCG) plays be one of those betas that you are looking for. You spoke about OROP, the one rank one pension; you spoke about the 7th Pay Commission. Are these slightly longer long plays?
A: As well as consumer durables. The usual suspects and consumer discretionary, advertising is something that is doing very well already despite of other sectors not doing well because you also have the growth of e-commerce companies. So they are providing a nice buffer. So I would get Governor Rajan to focus on being a little bit more growth focus at this point and Arvind Subramanian's comments should be taken very strongly by the Reserve Bank of India.
Latha: How will you play the expected rate hike from the Fed.? Would that be an event that you would go short in emerging markets and then take a call after September 17?
A: I think a lot of the risk reduction has already taken place. I would say a substantial part has already taken place ahead of that meeting and that is what we are seeing on daily basis. So once that is behind us and you have the rate increase, there will be a lot more uncertainty out of the way. And I do not expect a series of rate increases.
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