'Hold on, best of rally yet to come in Indian market'

Manish Singh of Crossbridge Capital expects Indian equities to end this year at higher levels. In an interview to CNBC-TV18, he said that Indian market, which has seen a stellar run-up since May this year fuelled by reform push by the new government, is yet to see its best rally.

According to him, on the back of plunging energy prices, falling inflation and a pleasant political scenario, there are enough positives to build up into a better rally and bigger rally for next year.

Continuing his bullish tone, he added that global fall in crude prices will also come as big boost for emerging markets (EMs) like India, which import most of their oil requirements. While Singh is not overly bearish on other EMs, but said that one should be watchful. “If an investor were looking at increasing his bets he would then go slightly overweight on EMs given the oil price continues to slide,” he added.

Meanwhile, most markets across the globe have been bleeding red, as concerns over global growth and the stability of the Greek government triggered a massive sell-off.

Manish Singh

Director & Head of Investment Services|Crossbridge Capital

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In addition, given that the energy costs have plummeted, Singh believes American consumer spending during Christmas will be positive despite weak US retail sales data. Furthermore, tumbling energy costs gives emerging markets (EMs) like India a shot in the arm.

Also read: Intl oil prices, low US rate hope bode well for India: StanC

Below is the verbatim transcript of the interview:

Q: You are in the heartland of where the problem emerges from. The European markets have seen a big crack in the last many days. What is the sense you are getting? Is there a meltdown on the cards?

A: I would say that it is an anxious time. If I can give you two data, yesterday there was a 10-year high in bond volume trading in the US and three year high in equity trading. It shows that how the market is nervous about the movement and to amplify the nervousness, you saw the Dow that went intraday down by 400 points but it closed down only just over 100 points. So, there are arguments on both sides.

My personal view is that there is a risk aversion scenario and a lot of it is to do with Europe. The fact that ECB has not followed up or is not looking to follow up on many things that they said, there is rumour that there is a breakdown in communication between ECB and Germany and that is causing people to worry.

The data that moved the market yesterday was the US retail sales data that came out weaker, though I should point out that if you look at how much the consumer is going to have money to spend in the oncoming Christmas season, it is going to be a very positive number given how the energy cost has fallen.

So, I don’t think it is overly bearish but it is very anxious times.

Q: So are you saying what the reaction we are seeing has more to do with Europe than really the outlook on the American economy?

A: Yes, because if you see only last month we were talking about US Gross Domestic Product (GDP) growth expectation of 4 percent for the quarter and US GDP growth rate has been gradually increasing over the last three year as we have seen and it could be 3 percent heading into.

So macro data is not very weak but you always see the market rates on forward expectation and the forward expectation is looking weaker from what is happening in Europe and just to make it worse Germany, the biggest European economy they had a 5 percent dip in export and this was down to the sanctions imposed on Russia.

So there are some macro pictures playing but the larger implication is that the growth in Euro zone is not accelerating, the inflation is falling and there is this deflationary fear that is building up. Germany is not willing to cut their surpluses and even International Monetary Fund (IMF) has pointed out that you cannot have just one zone of growth in US and Europe.

Q: But in a sense, all of this is not structural. It is more negotiable because, as you pointed out, if this is more misunderstanding these are matters that can be thrashed out. So this structural problem has gone away from Europe. So, how toxic can it get?

A: What we saw yesterday was pretty much some critical triggers in the bond market and I am sure that there was liquidation going on with margin calls because if you have a leverage trade on which a lot of people are doing option trading, which they have along with market gaps by 2 or 3 percent, then some of these get triggered. So you saw that happening yesterday, so there was a sense of panic but fortunately what we have seen is the day didn’t end very badly but macro data wise I am much more positive than what the prices indicate but clearly in the market you trade prices.

Now of course if you are trading market then you should look at probability not as much the certainty. The probability of economy doing well is higher, the certainty of it doing weaker is certainly very low. So, I am still constructive but it is an anxious time.

Q: When you say that you are not overly bearish but you are watchful what do you mean as far as the emerging markets are concerned? If we do see a snowball effect into markets like India, what could the extent of the correction be?

A: Emerging markets will be impacted because you have seen that S&P has gone down by almost 8 percent from its peak. Let's not forget that energy costs coming down is a big boost to emerging markets. So, if you are looking at increasing your bets then you would go slightly overweight on emerging markets if the oil price continues to slide. May be it gets stops at USD 75 but that should be positive.

If I may point out I am looking at mining as a much attractive sector now, energy much attractive sector now than it was before. So, there are some trades to be picked up but clearly when I say being cautious it is more like would you keep buying in big volumes? Perhaps not but you would like to buy in small volumes and keep building up the portfolio.

Q: Do you think that the best of the rally in the Indian markets is now behind us for the next say 6-12 months?

A: No. I would say that the best of rally is yet to come and I will give you two reasons for that, one thing is that I do believe that the year will finish stronger in US and that should have an positive impact on India and other emerging markets.

Second is, you know yourself from what is happening in India is that the government is looking to win the two states in the state elections. Now that should be seen as a positive. So, the reforms in India is continuing. Energy, a big part of expenses in India looks cheaper; inflation is falling. So, the positives in terms of economy and data is there and that should build up into a better rally and bigger rally for next year.

Q: So, what you are saying is what is happening in Europe is worrying but not necessarily debilitating at the moment?

A: No, even if you look at US economy the export numbers if I remember correctly it is not more than 10-15 percent for US. I think that what is happening in Europe is political. When Europe has its back against the wall, the politicians will have to sit down and negotiate. We saw that in 2011 when everyone thought that euro is going to breakdown and ECB came out and made one speech and people started buying on forward expectations. So, they have to rebuild the expectations, that’s what has to happen.

Q: I heard you mention that you are interested in energy sector. In the Indian markets if you had to cough up a shopping list. What would your sectoral preference look like?

A: I particularly like to trade on top down basis macros. I would buy India as an ETF. However, within India I still believe that the cyclical sectors like financials will do well and that should be the part of things to be held and industrial sector as well.

Energy I haven’t looked at the pricing now of Indian stocks in energy but as a sector or India as a country I think is definitely my good pick in my portfolio.