Cautiously optimistic on India ahead of 2014 polls: Banque

There is a general feeling of optimism that Narendra Modi has a good chance at winning the elections, says Hans Goetti of Banque International Luxembourg adding that, that is what the financial markets would like to see.

Speaking to CNBC-TV18’s Ekta Batra and Anuj Singhal, Goetti says that the market undertone will remain positive in the run upto the elections.

Also read: Putin reserves right to use force in Ukraine as last resort

Additionally, Goetti says that global financial markets have discounted the Russia-Ukraine crisis until and unless nothing real negative springs up again.

Below is the edited transcript of the interview.

Related stories

Hans Goetti

CIO|Banque Internationale a Luxembourg

• 
  India a buy, global risk-off trade temporary: Hans Goetti
• 
  Oil fall to benefit American consumer, India, Japan: Goetti
• 
  India stronger vs other EMs; narrowing CAD positive: Goetti

Ekta: We have got the election dates that have come out for the Indian elections or national elections, which are expected to take place in 2014, can you give us a sense on how exactly your investment firm is approaching the Indian equity space maybe ahead of the elections and maybe even post the elections, are you building positions ahead of that?

A: I think there is a general feeling of cautious optimism that Narendra Modi has a very good chance of being elected and that is what the financial markets would like to see. So,  the undertone will remain positive in the run up to the election into May and that is how investors should be positioned.

Anuj: What about the global markets situation, do you think this Ukrainian crisis has blown away for good or do you think that there could be some more issues which could come back to haunt the markets and in case there was a dip because of these geopolitical issues, would that be a buying opportunity?

A: The tensions around Ukraine have eased. It seems that sanity is prevailing. A military conflict is in nobody’s interest, neither the Russians, Europeans, nor the Americans.

I think the push will be for negotiating settlement, which takes into account Russia’s interest. United States is talking about some sanctions, Europeans are very reluctant to participate in that because they will feel the economic fallout from that. So, we think there will be some negotiated settlement but it will be a bumpy road and the issues ofcourse will come up once in a while. We think however the financial markets have discounted this whole problem and unless we have some real negative surprise, I think it should be pretty much dealt with.Ekta: I wanted to talk about how the Indian markets reacted from the currency stand point as well as from the equity standpoint when all of the geopolitical risks were taking place. India didn’t react as dynamically or dramatically on the downside on the currency space neither on the equity space as compared to all of our global peers. In that sense, has India decoupled itself on a temporary basis maybe because of the upcoming elections or is it because of the stability that we have seen in the rupee and hence the improving current account deficit (CAD) that we have seen for this year? What is it that is more positive or working for the Indian equities at this point?

A: It was probably a combination of all this. We have seen the low in the rupee quite a few months ago and then the Central Bank raised interest rates and since then, we have seen quite a lot of stability coming in.

We have the elections coming, international investors are looking at India and they have seen opportunities. That is why I think the stance will be cautiously optimistic over the next few months and it is more of a wait-and-watch attitude.

On the other hand, we have not seen massive capital outflow out of India, there are a lot of international investors still holding on to blue-chip stocks, good quality stocks so there is some optimism for the next few months that this will remain so.

Anuj: In that case, if you could give us your pecking order for equity markets first and even for overall asset classes how would you approach the asset classes for the rest of 2014?

A: In terms of asset classes, we are clearly overweight equities. Our top pick is Europe and in Europe we like cylical stocks mainly financials, automobile stocks, media stocks. Number two is United States. Number three will be Japan probably closely behind United States and then the emerging markets space is underweight maybe with the exception of some eastern European markets because we think that Eastern Europe is of a proxy to growth in Western Europe, which seems to be taking hold.

On the bond space, we are underweight but we still think that interest rates between the European periphery and the core Europe will narrow so we have a slight overweight in peripheral European bonds.

Ekta: What about commodities, we saw gold which inched up, do you think that there is more sustainability on gold on the upside?

A: I think the technical picture for gold has improved quite a bit this year and we need to see gold holding above USD 1,350-1,360 per ounce level for the bottom to be in. It almost got there and pulled back again.

We think it is probably going to happen sometime this year but we have a relatively cautious stance on gold in the near-term. We would like to see the technical confirmation there.

As far as crude oil is concerned, there was a bit of a scare because of the Ukraine issue that crude oil might spike on the upside. It doesn’t look to be that way of course, that would have been negative for market like India. So, I think the crude will remain in a trading range with the upper end capped at about USD 105 per barrel.