Indian fundamentals still strong, valuations a concern: Pros

The only challenge with regards to Indian markets is valuations, said Bhansali.

Commenting on the Trump win, he said one way to interpret Trump is - he is a maverick, he has his own methods of doing things but he knows where his self-interest lies. He is likely to have a more pragmatic approach than a text-book approach, says Bhansali.

According to him, one is likely to see a subtler, more calibrated approach from Trump to whatever he said in the campaign.

Leo Puri thinks the dip and the rise in the Indian equity market was due to fair amount of unwinding of bets. However, he does expect volatility to continue going forward for some more time because emerging market currencies are volatile on fears of an end to easy money and Fed tightening.

Talking about the impact of demonetising the Rs 500 and Rs 1000 notes in India, Puri says it’s the most progressive move and could have a short-term impact on growth. However, the government will have to continue with follow through measures to curb the black money going forward.Below is the verbatim transcript of their discussion on CNCB-TV18Latha: The afternoon certainly getting better by the minute. The Nifty had lost 550 points and now it has gained about 400 points from the day’s low. What is your sense have we put a near-term bottom, this market is resilient enough to take a lot of shocks, so 8,000 it is?Jain: I think just like Brexit the fears are always exaggerated because there is no reason for India to get significantly impacted. If you look at Donald Trump, his mannerism or his morale conduct those have been different issues, but if you look at policies he wants to cut taxes, he wants to invest in infrastructure. He wants to not increase the state duty. So they are more capitalist like.One has to wait for the dust to settle and see how things pan out from here. However, I won’t be much worried about India because I don’t think anything should change for India in terms of macro environment.Latha: The worry is only about emerging market (EM) funds. We already saw them shying away in the last six weeks. Will there be actual sell-off in anticipation of what the new President might announce?Jain: I think those fears are exaggerated because India 7.6 percent gross domestic product (GDP) growth within EM is a clear shining star. Then all these things, before the event people worry a lot more but once it has happened then people start looking at a positive side of Trump as well. At the end of the day I think the economic fundamentals will attract money and there is enough money in the world. So, if you ask me personally, of course one needs to watch how events unfold from here.However, I don’t think that we would advise anybody to get into panic or do a panic sale or maybe wait and watch but as far as India is concerned our fundamentals are strong they are getting better and we shouldn’t worry about anything.Reema: What is the anecdotal evidence on the desk today? Where has the buying emerged from, is it from largely from mutual funds, have retailed participants being buyers at lows, what is the foreign institutional investors (FII) activity been today, what are your thoughts on that?Jain: I don’t think there would have been much of delivery based buying as such, but people would have been short in the morning and then they saw that Trump was leading and the market was volatile. Now they are realising that even US futures have bounced back. Prashant: You heard Donald Trump, what are your initial thoughts on the new President Elect?Bhansali: The President is always different from the candidate and this is being borne out here that he has to rule for the next four years, hopefully for eight years and what he talked on campaign cannot make that happen. So, it is politically right and one has to wait and see that what exactly he does. However, I am hopeful.Reema: This 8,000 mark has weathered the Brexit storm, it has weathered this upset in the US Presidential Election, does it hold its medium-term bottom?Bhansali: I am not too much of a technical guy so I would not know about it. However, I think the story of the world is very simple that there is uncertainty on account of what has happened at macro level in terms of liquidity. However, where the growth lies, what is sensible, etc there is huge amount of concession.The developed world has more problems than emerging markets and India probably the least of all. Again and again whosoever has got liquidity comes to India and boosts it. So, valuations are the only challenge for Indian market; no other challenge is going to last.Latha: There is one other challenge, isn't there, I know it is near-term, the earth shaking announcement that came yesterday in terms of the de-legalising of Rs 500 and Rs 1,000 notes. Assess for us the impact on the real economy through either real estate or through the informal economy. Do you think it takes away a little bit of a growth in the near-term?Bhansali: I think not even half as much as most people seem to indicate because I expect that people -- the government intends to do so, the banks intend to do so, you are going to see a lot of conversion of currency into what we call the formal economy. It will take probably a month or two. The kind of things I am hearing, the kind of innovative approaches that I am hearing, I am absolutely delighted. I am not surprised I must say that because people always find ways of dealing with these problems. So, I think maybe a month or two, some growth may be affected till all this settles and people have to get used to spending with card.However, I have seen that happen in stock market, I have seen that happen with dematerialisation, I have seen that happen in several sectors. We never thought that any real interest transaction would happen without cash but over the 10-15 years as corporate names came into it, we have seen a lot off transactions happen in that manner. So, I am a great believer of reform, I think this is a solidly reformist move and the market and other forces are going to rally to win rather than lose on this account. Therefore, I am extremely optimistic about this, maybe a couple of months where we will see growth dither and growth shake but we are back on track. Prashant: We have a new President in the US, Donald Trump. What are your first thoughts as somebody overseeing a large pool of money here in the Indian context, how would you see this?Puri: First, I would agree that there is obviously a difference between campaign rhetoric and the way that people govern. On the other hand, I don’t think we should underestimate the significant directional shift that is likely to happen on a number of key fronts. There is no doubt that Donald Trump has very strong views on trade, he doesn’t like the Trans-Pacific Partnership (TPP), he thinks China is mercantile and have threatened curative action and I think he also believes they have devalued their currency, so I think the impact on global trade agreements, global trade patterns will certainly be real and be felt in fairly short order.I do also think we shouldn’t underestimate some of the issues he has raised around immigration. Of course, he may not build a wall in a physical sense but nevertheless given that he has been elected partly as a protest to what people feel is a loss of jobs, he will have to show radical departure from the open policies at the US as followed and I think that will include things like betting immigrants for alignment on cultural values and so on even if not so called visa ban on people of any particular religion and so on but there will be real directional shifts there. You will see tax cuts, you will see a change of the Fed. So the extreme rhetoric is overstated but we should clearly understand that this is an ideological shift with very far-reaching consequences that we are witnessing.Prashant: The two big sectors in India which were closely watched -- one is the Information Technology and the other was pharmaceutical space, both heavily dependent on the US market. Under Trump, how do you think these two sectors will fare? It is unlikely and widely agreed that he will be able to do lasting damage to well-run large companies in these two sectors but incrementally how do you assess prospects with these two sectors?Puri: On IT, it has already been recognised by large firms that you do need to build more strong businesses onshore and give up the reliance on the offshoring model. Many of our firms have already started to do that and under Trump that will probably need to accelerate. I don’t think therefore, that will be of any long-term consequence as such.On pharmaceuticals, there will be material shifts to ObamaCare clearly Republicans believe that is an expensive and not a market led option -- if anything you will see increasing reliance on generics, there may even be benefits to that extent provided we overcome our regulatory and quality issues, which we are well positioned to do. So, as regards both of those industries, I don’t expect a very radical break with the path we have already been on as Indian industry.Reema: Give us your thoughts on the market moves, we could understand the 1,600 point Sensex fall because Trump victory was unexpected but what about this 1,200 point intraday Sensex recovery, what is driving that according to you? Puri: I think there was a fair amount of unwinding of bets essentially. People were caught by surprise and to that extent, people who had positioned themselves somewhat speculatively on the different outcome were simply unwinding those bets. Having said that, I do think we are in for clearly further sustained volatility because there are material adjustments that will now occur. We have seen the extent of currency movements. Some of you may have tracked what happened to the Peso, it dropped 13-14 percent, it is now down to 4 percent, very sharp movements also in the won and the rand, so we have seen other emerging market currencies yo-yoing as we speak. We have seen bets on rate cuts eroding very rapidly in the US and rates have receded even though Trump\\'s official view of course is that he sees that Obama has run a period of easy money with Yellen at the Fed which he intends to reverse, he thinks we have had easy money for far too long. So if anything, you should be expecting much tighter money over the US post the Trump Presidency. So there is a mix set of signals here where on the one hand, there is this near-term flight to safety, which is US treasury and gold, which is what has happened today to some extent but against that you have the outlook for a higher interest rate regime in the US which eventually will drive the dollar higher. So, we are seeing a little bit of near-term contradiction to what I think will be more likely underlying trends. In that context, it is true that today what we are seeing in India is not a reflection of our underlying potential.