Foreign institutional investors (FIIs) are positive on Indian market despite having a widespeard negative stance on emerging markets (EMs) that comprises India too, says Punita Sinha, managind partner, Pacific Advisors.
Speaking to CNBC-TV18, Sinha says that the recent rally seen in India, is aided by politics and the likelihood of an NDA government coming to power, that alone, is not leading the smart uptick seen in the market.
Also read: Not just a hope rally; add to cyclical positions: JPMorgan
“This is mainly because there is a lot of expectation that things are going to improve. If one looks at the consensus earnings forecast and estimates, we are seeing a very sharp uptick in earnings for FY15 by most analysts. Same thing for GDP forecast, we are seeing about 5.2 percent this year and people are expecting as high as 6.2 percent next year,” she adds.
Below is the edited transcript of the interview to CNBC-TV18
Latha: Where is the Nifty headed from here, is this all a political hope rally or are you seeing some legs in terms of valuations and improved earnings?
A: The way it is performing, I don’t think the Indian market alone. If one looks at the performance of Indian and other markets, it is pretty much in-line. Infact, over the last seven months, since August actually, India and S&P have been fairly correlated. While we are all very focused on what is happening in India, if one looked across the world, the trends are somewhat similar. Infact, if one looks at what is happening year-to-date, the beaten down markets of last year, like Thailand, Indonesia are up even more than India. So, clearly it is not just politically-led.
Latha: Within EMs itself that basket has actually seen lot of outflows but India has continued to see inflows. So does India remain favored, is there any reason for this favour beyond the political?
A: Most people are somewhat neutral on India and while EMs are getting outflows, India is also seeing outflows because they have to sell and redeem across all the markets. So, to that extent broader EM funds are also somewhat selling India although on the margin if one looks, they are more positive on India compared to some of the other markets.
This is mainly because there is a lot of expectation that things are going to improve. If one looks at the consensus earnings forecast and estimates, we are seeing a very sharp uptick in earnings for FY15 by most analysts.
Some people are saying FY14 is about 12-14 percent and FY15 is as high as 20 percent. So, clearly there is belief that things will improve.
Same thing for GDP forecast, we are seeing about 5.2 percent this year and people are expecting as high as 6.2 percent next year and that is all predicated on a strong government being formed. Right now, the expectation is that NDA will form the government and therefore there will be stability and they will really push through reforms and be market-friendly but if that doesn’t happen then we are in uncharted territory.
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