Mkt fall capped, but India no longer favourite pick: Sanger

Latha: Put this into perspective, should we be extremely worried about deficient monsoon considering that agriculture in general and food in particular is forming a smaller and smaller part of Indian gross domestic product (GDP)?

A: By itself it would be a small issue but we have just come through an extremely disappointing quarter. I am not sure who is coming up the GDP numbers that India is now printing but they have put the Chinese GDP made up statistics to shame because at the end of the day the fact that you had virtually no topline growth in private sector or very little in this quarter suggests that GDP is quite sluggish.

So, against the backdrop of a very weak growth and the backdrop of very disappointing earnings number were earnings were down for corporate India at least the public companies that have reported so far, if you have other negatives one of which is obviously the monsoon concern and the second is now less hope of Reserve Bank of India (RBI) providing any more tailwind beyond this 25 basis points rate cut. So, if we combine all this together, I guess we are running out of things to get optimistic about right now.

Latha: Are you getting disappointed enough to sell out your portfolio that you have at the moment?

A: No, we are not disappointed enough to sell out but we have gotten maybe less long in the last few weeks given what we saw was a tough earnings season. However, pullbacks, we have to be a little more selective than I thought we would have to be at this stage because the macro growth story looks like it is going to be way slower than any of us would have expected.

Private sector is clearly not in a capex or spending mode. Some of the consumer sectors are starting to see signs of life. So we have to be much more selective of where the signs of life are and wait and see how things unfold in terms of some of the factors that could help drive a broader recovery in the Indian economy and in the Indian stocks earnings and that would require more action both at the government level as well as corporate confidence to drive some of the virtuous cycle of meaningful growth. I pay very little attention now to Indian GDP numbers given those revised numbers make no sense.

Sonia: What could the down side of this market be now? Are we starring at just a timewise correction that we could be seeing in the next 3-6 months or is it a pricewise correction where this market could head well below the 8,000 level in the near future you think?

A: There are two macro factors we have not talked about one macro factor that could drive very short-term risk is, what is going on Greece. That could drive some short-term volatility. At the end of the day the Greek exit, if it happens over the next few weeks will prove to be largely a non-event but it will cost some near term volatility and that could drive Indian markets weaker.

The second factor which Reserve Bank of India (RBI) talked about is what happens to oil prices. There are few things going on that could drive that, there is the Iran negotiation which is supposed to conclude at the end of this month. There are other supply-demand factors; is oil trending higher by the end of the year it could reach USD 75 but that is not a huge move from here when it is already at USD 65. I would say that in the near term you could see the Indian Markets range bound Nifty in the low 8,000-8,500 range bound. I don’t see a massive correction beyond that barring any big surprise on the global macro front.

Other than that I think may be it is a time correction, at the end of the day we have to wait for broader earnings recovery visibility for the market to move higher. However, no more, our investors including us just buying on blind faith that all the right things that are happening in India will drive a recovery because unfortunately it has not shown up the way that most of us anticipated a year ago how recovery would shape up by this time in India.

Latha: What would be a place to hide?

A: I would say that again India has always got bottom-up stories. So, broad based financials, infrastructure, growth oriented macro, spending driven companies are not the place to be. However, there are some auto stocks and there are some commercial vehicle stocks where you are starting to see some demand recovery. You have the housing finance companies which have done well through this whole cycle where it hasn’t mattered about the slowdown in terms of their steady earnings growth.

So, you have high quality banks, the higher quality companies as well as some of the sectors where it is domestic consumer – we saw a couple of weeks ago companies like Jubilant Foodworks start to show recovery in earnings. So, again that suggests that the domestic consumer might be, certainly the urban consumer demand is recovering. We have seen some auto numbers that are good so there are few select companies that we like, more bottom-up driven than making big macro bets but at the end of the day there are some sub-sectors where things have stayed good.

The one disappointment this quarter has been that both the IT sector and the pharma sector which are not domestic facing, have seen some headwinds. There are real questions on our mind about the IT sector, what are the macro issues here in terms of growth slowdown. So, I think that is a sector that becomes a little bit less certain in terms of being a place to hide.