Post the Federal Reserve's second tapering in bond buying programme, emerging markets witnessed some FII outflows. Currency weakness across the EMs too didn’t help.
But now FII flows have once again turned positive, which most definitely is a positive for the markets. Dipan Mehta, Member, BSE and NSE says along with FII inflows, the fact that the interim budget and the uncertainties related to it are also out of the way is good news. He says globally the risk appetite is coming back and the EM rout too is receding. He believes the market is getting its rhythm back.
Also Read: Election year for emerging markets: What to expect
According to him, Indian export-oriented companies are seeing a lot of FII interest. He says these companies are benefiting from the weak currency, better trends overseas in terms of the economy and other such reasons. "Fundamentals of the exporters are improving, which is reflected in their quarterly numbers, and this is attracting foreign inflow," Mehta told CNBC-TV18.
From the broader macroeconomic perspective too, there is now a lot of consensus that the worse if over as far as current account deficit or fiscal deficit, etc., are concerned.
He feels it might be safe to buy pharma and IT stocks as these are not impacted by elections or any sort of political uncertainty. They are driven by global trends, he adds. Among the entire spectrum of industries, he believes only IT and pharma companies give the impression that they can deliver 15-25 percent compound growth over the next 2-3 years.
Below is the verbatim transcript of Dipan Mehta's interview with Anuj Singhal and Ekta Batra of CNBC-TV18.
Anuj: Do you think the market has put the worse behind it? Some risk appetite is back and is the market moving back towards its highs?
A: The fact that FII flows have turned positive is certainly good news for our markets. At the same time the interim Budget is over and done with. So, that is also one uncertainty which is out of the way. Gradually we are seeing that globally, risk appetite is coming back and the fear of an emerging market rout is receding with every passing day. So, we are seeing some kind of money which was waiting on the sidelines getting into the play. The best signal has come in the last two days or so with midcaps also getting into the act and rallying as they have done. So, I would say that we are again back, getting our rhythm back slowly and steadily. However, all eyes are on the political scenario and how that shapes up.
Ekta: I just wanted to touch upon the point with regards to the FII flows. Why do you think that it’s turning positive? What are the FIIs thinking when they are investing into India now?
A: Some of the aspects which a lot of investors including FIIs are looking at is the fact that the global companies i.e. the export oriented companies out of India are doing pretty well. They are benefiting from a weak currency as well as they are benefiting from better trends overseas in terms of economy. For example, in pharmaceutical companies more to do with more and more registrations of products taking place abroad. So, fundamentals of the exporters certainly has been improving and that has reflected in the quarterly numbers as well. So, to that extent those are attracting a lot of flows from FIIs, from domestic investors as well.
There are some of the deep pocket investors who feel that beyond the elections and beyond the high inflation scenario which we are facing just now at some point of time later in the year we will see the economic activity improving as interest rates start to peak off and even decline. On the whole even from the economic point of view a lot of consensus is there that the worst is more or less over. The threat of current account deficit spinning out of control is more or less over and done with and fiscal deficit also it was good that we maintained the 4.8 percent. There is impression that it is not something which is unmanageable as it was a few months ago where subsidies were soaring.
Anuj: Some action is back in pharma and IT today after last three or four days of profit booking. Do you think it’s a good time to accumulate some of these stocks?
A: It is a safe strategy and it is a good strategy if you feel that there is going to be a lot of political uncertainty after the elections. These are companies which are not impacted at all by what happens in the Indian subcontinent at all. They are driven by global trends be it higher tax spending on some of the new emerging technologies or in the case of pharma, the Indian pharma companies are doing a fabulous job in terms of expanding their markets and launching more and more products be it para IV filings or even generally getting into newer markets. They are benefiting from operating leverages, they are benefiting from currency depreciation, and they are benefiting from utilisation of capacity which has created over the past two or three years or so. Basically if you look at the entire spectrum of industries at this point of time it is only pharma and IT which do give the impression that maybe over the next two or three years or so they could show anywhere between a 15-25 percent compound growth. That is attracting a lot of investors.
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