FIIs have a look-in, may refrain from pharma, IT: IIFL

The ongoing liquidity-driven rally in the local market caught the foreign institutional investors (FII) by surprise, said Ayon Mukhopadhyay, the Director, UK Office, IIFL Institutional Equities. In fact, many FIIs, he adds, missed out on the mid-cap rally."The rally has seen relentless buying by the domestic investors," said Mukhopadhyay. However, he said FIIs are quasi-optimistic about the local market as other emerging markets start getting attractive owing to the rally in commodity stocks. On how US President Donald Trump's protectionist policies may affect the IT and pharma stocks, Rahul Ajmera, CEO, US Office, IIFL Institutional Equities, said Trump has been in office for merely four weeks and it is too early to speculate.Although he agrees that there has been a lot of pressure from news of possible reforms to US' work visa, H1B visa, and the 'make in US' initiatives of Trump administration. The price erosion of the generic drugs in the US has also caused unrest among pharma players.He said the FIIs may for now refrain from adding more exposure into IT and pharma; he, however, suggests traders to be stock-specific if they want to invest in these sectors.Ajmera is of the opinion that the IT companies have various methods to reduce volatility from Trump's policies.Below is the verbatim transcript of Ayon Mukhopadhyay & Rahul Ajmera’s interview to Prashant Nair & Ekta Batra on CNBC-TV18. Prashant: What the mood really is at the conference in terms of how people perceive the aggregate market and aggregate market levels in what we have done in 2017 so far? It has been a pretty good run so far. Ajmera: Yes, absolutely, people are pretty positive overall. Just to give you one data point almost 20 percent of people who are at our conference are actually from overseas. So, every fifth person pretty much give or take, but that speaks of the level of interest that is in India. I would say that most of these guys are veteran India investors, so they have been with India across market cycles and at this point in time they are actively exploring additional exposure is what I have been observing and this is pretty much inline with what I see across my US clients as well who have been progressively more inclined to add India exposure. A few obviously are playing the catch up game, but there are enough guys who were aligned with the moves in India and that continues, so it is pretty positive is what I would say. Ekta: What about foreign intuitional investors (FIIs) in terms of additional interest in India like Rahul Ajmera mentioned if they have to take additional exposure which are the sectors which might see the incremental amount of flows come into? Mukhopadhyay: Other than sectors I think what has happened is in the last few months for FIIs especially in UK the domestic liquidity driven rally has actually taken people by surprise. It is sort of a missed out for some they feel and it is exactly that if you see that there are some fundamental points, but the rally that we have had has actually just been by their relentless buying the domestics and that I think has got some people off-guard a bit. Of course, the rally in the midcap is something I feel that people have missed out and even in our conference we were seeing lot of interest coming into the midcaps and people are searching for ideas if they can in that particular sector. From the UK investor’s point of view, also from India they probably are a bit cautiously optimistic given that India has been the favourite emerging market for most of them almost by default because of the general demographics and stuff. Now given that you are having a global commodity rally other emerging markets are also getting attractive. So, it is not just, we should not also get into the sense complacency that India will continue to be of course the sentiment is very positive both here and back in the UK, but I think we would have to be a little bit less complacent as we are and as I said people are cautiously optimistic out there. Prashant: If I can ask you I am sure that there is a fair bit of chattered today at the conference with regards to Reliance Industries. It has happened over the years that one has pulled up the market Indices by couple of 100 points so if that stocks starts to move. Without commenting specifically on what it may or may not do what is the feel that you are getting about that part of the market if you can? Ajmera: There is definitely going to be a catch up trade there is what I would say because there was immense amount of scepticism around Reliance’s Jio and the level of money that they have pumped in to Jio. But, I would say that except for a few large FIIs who actually added exposure the rest of the FIIs at least from the US were not as exposed, so I would expect some kind of a catch up trade there. Like somebody was mentioning just time back – it was you mentioning that Reliance has that potential to pull up market single handedly so it is always on people’s radar is what I would say because whenever they look at Nifty they have to be looking at Reliance to an extent. So, I expect people to look at it more closely and I would not expect them to shy away from trying to add. Prashant: Two brief questions, one- globally we are seeing move away from people giving money to active funds to people piling into passive funds. Are we seeing that with regards to flows into markets like India? Second- generally what is your outlook for FII flows in to emerging markets given the fact that US is really expected to do very well? The markets have done very well and the underlying economy is expected to catch up as well? Mukhopadhyay: I will take your second question first. So the main risk that comes with the obviously the economy doing well is the Fed hike and we see that whenever chatter comes regarding that the money starts to move away of emerging market so that is a risk. But there is also huge amount of political risk also in the developed world, so what we are seeing; we are seeing this sweep at right-wing movements coming into the developed world. So, even a small political risk can blow-up in a major way and of course coupled with ageing population, massive polarisation of wealth so it is not that just because that we have had incredible rally after Trump got in it doesn’t really mean is that the people are shying away from emerging markets. Emerging markets still are the place where you can actually make money, yes, it does definitely comes with greater risk probably much more volatility, but still it is the place that people would probably want to be invested more and make money. That is why I said you can’t really hide that out, but of course the risk is there and whenever you will have flows like or as I said Fed hike they would be pressure coming in. An active- passive I think that is a trend that we have been seeing for quite a while right now. There is a huge amount of passive money that is coming in and essentially with more and more technology and stuff like that we have to see how much that goes. But it is pretty early to comment as if that is going to be the norm going forward or not and active funds are still around very much.