Going ahead, the market will look at other factors such as global cues, monsoon and corporate earnings and not just RBI's policy action, says Nirmal Jain, chairman, IIFL.
The Indian market had gone into the policy with the expectation that the Reserve Bank will not lower it policy rates. But reading between the lines, it is clear that the RBI governor Raghuram Rajan sounded more dovish than he did in the previous policy, says Nirmal Jain, chairman, IIFL.
Going ahead, the market will look at other factors such as global cues, monsoon and corporate earnings and not just RBI's policy action, he told CNBC-TV18.
Also, on the brighter side, Jain says the market will take comfort from the fact that growth is showing signs of a pick-up, liquidity is benign and there is continuous flow of FII money due to problems in China. Except for corporate earnings, which may take a few more quarters to recover, rest all are signs of a bull market, he adds. According to him, there will be buyers at every dip in the market.
Below is the transcript of Nirmal Jain’s interview with Latha Venkatesh on CNBC-TV18.
Latha: Having got what the economists and the bankers are saying, what should the stock markets take from the policy at all? A non-event done and dusted and the markets are now back to looking at global factors and corporate earnings? No need to look back at the RBI till September, 29?
A: More or less, I think there is a situation because this is line with expectation, so market was not expecting any rate cut at this point in time. But at least reading between the lines is sounding more dovish than the earlier policy stand. So, the immediate reaction of the market was a little bit of correction, but it bounced back. So, the market will look at other factors, like global cues as well as how corporate earnings and monsoon news come from here on. and will not be driven by monitory policy at this point in time.
Latha: And what therefore is your own stand in the markets? Are you seeing 8550 or 8600 kicking in as a roof for the markets now?
A: So even if you take the monetary policy as well, that growth is showing signs of pick up. The macro environment is improving because the inflation is down and liquidity is benign; so, regardless of rate cut, cost of funds is coming down across the sectors. Also, flow of FII money will continue because China is no longer an attractive investment destination for whatever has happened, the way they handle large investors as well as the slowdown there, so all these factors put together, one can look at a scenario where there is a continuous flow of funds from FIIs as well as our domestic investors in the market.
Corporate earnings, coupled with some signs of recovery, may take couple of quarters more to show some more visible signs of improvement but all the factors point towards underlying buyers for a bull market but only thing which will keep market little bit in check is that corporate earnings of this season are not very great and therefore people who go by in earnings and PE multiple will have to wait for some time but still at every decline, at every correction you will find new set of buyers.
Anuj: You did say that the market will now focus on other issues, the policy is out of the way. What is your own stance on the market because we have seen quite a bit of volatility and there is a bit of a resistance every time the Nifty is going towards 8600?
A: Market will consolidate at these levels but in my view, underlying bias is positive and market is held upward if you look at at least next one or two years’ time horizon. It is almost impossible to predict market on a day-to-day basis but market is showing tremendous strength.
Even if you look at today’s market, despite the two school of thoughts, there was Moodys’ expecting that there could be a rate cut but there was no rate cut and market took it in its stride. So, that shows that market has underlying strength, there is a flow of money from foreign investors as well as domestic.
Anuj: Let’s talk about couple of sectors, how are you playing this PSU bank rally? That is continuing even today, the index itself is up some 13-14 percent in last four days. Is the risk-reward still favorable here or do you think this is a bit of a trading pop which could disappear soon?
A: PSU banks beaten down to valuations which were quite absurd and very low. So, some of the PSU banks were at 0.2 times the book, some of the PSU banks were at 1.2 times operating profit. So, one has to be cautious because non-performing assets (NPA) situation in PSU banks will not be standard across the board- different banks have different kind of problems but the market always is sentiment driven and when there was NPA scare, the pendulum swung to the other extreme, which were beaten down to levels which were very low.
So, there are some value seekers, there are some investors who are seeing tremendous value in this bounce back. All said and done, PSU banks in India are unlikely to default, there is implicit de-facto sort of guarantee by government of India and in that framework if you see that some of the PSU banks are doing well, incrementally they are facing any pressure to take up large projects where risk is higher and if they keep the past problems in check and some of them will get better with the economy recovering and incrementally if they make sure that the book is of good quality, then over 6-12 months when there is a broader recovery in the market and the economy-they look good, so I would say that some of the PSU banks are still very attractively valued ad that is what investors are now chasing.