US presidential elections may not have a significant impact on the markets in the medium-term as markets have factored the odds of each presidential candidate winning quite well, Naveen Kulkarni, Chief Investment Officer, Axis Securities, said in an interview with Moneycontrol’s Kshitij Anand.
edited excerpts:
Q) PM Modi launched 'transparent taxation' platform last week. Your take on the announcement and will it impact markets and taxpayers?
A) A transparent and efficient taxation platform is key to any nation’s progress. India’s tax to GDP ratio is much lower than most of the developed markets but more importantly, the direct tax collections are even lower.
So, a transparent taxation platform will bring long-term benefits to both the taxpayers and the government.
However, for the tax compliance to increase significantly, tax rates should be much lower. So, the launch of a transparent taxation system is the first step in providing benefits to both payers and collectors.
Q) Equity mutual funds see negative inflows for the first time in over four years. What could be leading to the redemption pressure in MF? Does it look like investors are cashing out or is it the liquidity needs which investors have to deal with due to job losses etc.? What are your views?
A) Equity mutual fund inflows have been negative for the first time but it has also been seen that retail participation in equity markets is touching all-time new highs.
So, while mutual funds inflows are negative but this could be a temporary challenge as retail participation in equity markets continues to rise.
Q) What is your take on the markets? Do you think we could see some selling pressure when the vaccine arrives?
A) The markets could be range-bound but the arrival of vaccination is more likely to significantly improve the market sentiments further.
While it could depend on the levels of the market at the time of vaccination but if we assume the market is at current levels, then it is more likely to rally if the vaccination is available tomorrow.
Q) Which is the biggest risk for equity markets globally --- is it the trade war between the US and China, or the outcome of the US Presidential elections?
A) The biggest risk to equity markets is still the economic recovery and the hurdles to it. The US presidential elections may not have a significant impact on the markets in the medium-term as markets have factored the odds of each presidential candidate winning quite well.
Global trade has declined quite significantly and fostering global trade could be a key agenda for both countries. The key risks to markets will be how inflation pans out and the continuation of liquidity in the system.
Q) What is your outlook on precious metals as a sector? Recently, it has got enough attention from D-Street. What is fuelling the rally in metals, and are there any top bets which investors can bet on?
A) Precious metals are inversely correlated to global yields and prices could continue to remain healthy as yields continue to remain low.
Metal prices and commodity prices have started to improve as economies have started unlocking. In the metals space, we like Tata Steel and Hindalco.
Q) Market might not go back to levels seen in March, but what would be a good level to enter in case we see a selloff in equity markets?
A) In an event of a sell-off, around 10,000 levels would be a good level to enter. Even as the markets have rallied from the march bottom, of the ~3500 points rally, 900 points are contributed by one stock which is Reliance Industries.
So, adjusting for Reliance Industries, the market is around 10,300 levels. Thus, with a 1,000-point correction the market could be very attractive.
Q) What is your take on MNC stocks? Do you think they are better placed in this pandemic? If yes, which one tops your list and why?
A) MNC stocks enjoy higher return ratios and do not need much capital for growth. That’s been one of the key factors why MNC companies trade at higher multiples.
From a pandemic point of view, MNC companies are relatively well placed but not necessarily all the MNC companies are significantly better.
The stocks that have contributed the most to the rally are RIL, Infosys, and HDFC Bank which are pure homegrown companies.
While MNC companies have their advantages but there is a wide range of companies that are well placed in this pandemic. The key factors are the need of capital, Return on Equity, and management quality.
Q) FIIs are net positive so far in the month of August in the cash segment of equity markets as compared to DIIs who are net sellers? If looks like investors back home are getting edge at higher levels? What are your views?
A) FIIs, are mostly influenced by global liquidity and current liquidity is global as well as domestic retail which has been a very broad trend.
So, this trend could continue between FIIs and DIIs. As FIIs turn sellers DIIs could become buyers. However, at this juncture, it will be difficult to gauge who has the edge or getting edgy.
Disclaimer: Reliance Industries (RIL), which also controls Jio Platforms, is the sole beneficiary of Independent Media Trust which controls Network18 Media & Investments that publishes Moneycontrol.
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