Local factors, not Greece, keeping Dalal Street bulls nervy

Moneycontrol Bureau

India is much better placed to withstand the unfolding crisis in Greece and any turmoil in global financial markets could in fact work to India’s advantage, say most market experts.

But other factors like sluggish earnings growth, delayed capex recovery, uneven economic growth, inadequate monsoon, and the government’s struggle to pass key Bills like Land Acquisition and GST could cap near term upsides in stock prices, say some players.

William Buiter, Global Chief Economist, Citi feels the “extremely professional management” of the monetary policy and the “more than adequate management” of the fiscal policy makes India relatively immune to the events in Greece.

“India will be very little affected by the global fall out of the Greece crisis,” he told CNBC-TV18 in an interview.

“If Europe slows down (because of the Greece crisis), India will be affected through the trade channels, but a direct and disastrous financial market transmission, resulting in sharp depreciation of the rupee, a spike in interest rates, collapse of the stock market does not seem likely because of the (track) record of management since the rupee crisis of 2013," he said.

Eric Fishwick of CLSA share Buiter’s bullish view of India.

“The weaker the world trade environment the more attractive those economies that have historically low correlations between it (world trade) and GDP growth,” Fishwick wrote in a note to clients, citing China, India, Indonesia and Philippines as examples.

“Given that we have cut our China, Indonesia and Philippines growth forecasts, India increasingly stands out if the euro does weaken further or faster than we expect,” the note said.

Last week, RBI Governor Raghuram Rajan said after the initial burst of volatility (if the Greece situation worsened), investors would start differentiating among markets.

Rajan said the India story continued to remain good because of good macro policies, healthy growth relative to other economies and adequate forex reserves.

The other good news for India is that global investors’ craze for China appears to be waning after the steep corrections over the last month.

Even as Chinese policy markers are trying their best to prevent the economy from slowing, the scope for further interest rate cuts could be limited, feels broking house UBS.

Samir Arora is in the camp which feels that India no longer has to worry about global investors shifting their funds to China.

Yet, the Indian market has its own set of headwinds to grapple with.

“The market is not cheap,” Sanjeev Prasad, senior Executive Director & Co-head, Kotak Institutional Equities told CNBC-TV18.

“If you look at Nifty-50 or BSE-30 index, both of them are trading at about 18 times for March 2016, so clearly valuations are on the higher side,” he said, adding that most growth stocks investors were keen on owning were already very expensive.

There could be some disappointments on the policy front as well. CNBC-TV18 reports that the Goods and Services Tax Bill is unlikely to be taken up in the coming monsoon session of Parliament. That is because Congress members on the joint parliamentary panel on GST are likely to submit dissent notes against the panel’s report to be submitted on July 17.

That is bad news for the government, which has already given up hope of pushing through the Land Acquisition Bill in the monsoon session.

News on the macro economic front remains mixed. Core sector output in May hit a six-month high. But this news was tempered by softness in the manufacturing and services PMI readings for June.

And while, there some of the stalled infrastructure projects have got moving, companies are wary of announcing new projects because of weak demand.

Broking firm UBS said hope that regulatory clearances for stalled projects will kick-start the capex cycle was misplaced as most of them were either unworkable, unviable, constrained by promoter funding, or already substantially completed.

Market experts feel benefits from the recently announced government projects will start showing up only in the next fiscal, and that too depending on the pace of execution of the projects.

Add to this, profit warnings from software services companies in the last few weeks, and the overall mood is circumspect as the first quarter earnings season kicks off.

Last but not least, concerns of inadequate monsoon have resurfaced with the last couple of weeks being relatively dry.

Sustained buying by domestic mutual funds has helped offset net FII outflows of around Rs 7300 crore in May and June, and keep benchmark indices firm.

Most players are confident, or even over confident, that near term downside appears limited. But they do not see the market making a big move on the upside anytime soon.