The Indian markets led to a sharp sell-off Wednesday with benchmark indices ending at their lowest level in 2015. The next one-two quarters will be weak for the market, says Vivek Misra, Asian & Global Equity Strategist, Societe Generale.
According to him, the foreign buying will not resume immediately and there will be more sell-off. The Sensex can fall up to 26,000 before bottoming out. Misra believes once volatility in the Indian market is over it may again start looking attractive.
In an interview to CNBC-TV18, Misra says US bond-yields may rise in short-term on the back of US Federal Reserve hiking rates this year.
Misra likes banks, industrials and consumer discretionaries now and prefers private banks over public sector banks. He also advises investors to focus on largecaps at this stage.
Below is verbatim transcript of the interview:
Q: Will long-only funds bite into Indian market because of their current fall in levels or do you think that the combination of reasons will mean people will stay-off for longer, more falls expected?
A: As far as our view on equities is concerned we think that the next one to two quarters could be quite weak. In that sense, you will not see foreigners coming back in the near-term.
We do expect that once in a couple of quarters when the volatility is over, foreign buying should resume but not in the next quarter or so.
Q: How should an Indian investor or emerging market investor interpret the rise in bond yields in Europe as well as in the US? Will it mean that incremental money will shift out to these safe havens?
A: As far as the bond yields are concerned, in the US, we do expect bond yields to rise. This is because of expectations that the US Federal Reserve will raise rates sometime this year. So, that will definitely mean that some money will shift to those markets. Having said that, equities remain quite attractive and I expect that at some point foreigners will start buying equities.
We think Asia in general is quite attractive. A lot of the emerging markets in Asia do remain attractive though we are a bit more bearish on emerging markets outside of Asia. Once the volatility is over we do expect buying to resume.
Q: You said foreign investor buying will not resume soon but what about Indian retail local investors? Is this a good time to be deploying some money or do you think that one should wait to get better levels?
A: If you are brave enough, it is a good time to buy. A lot of retail investors may be spooked a bit by the volatility and in the coming few weeks or months the buying may be quite weak. However, once the equity markets do resume their upward trend that should come back again.
Q: In terms of stock ideas or sectoral ideas what tops your list now?
A: Most of my recommendations are with 12-month view and in that sense we do prefer cyclical stocks. We like banks, industrials and also consumer discretionary names.
Q: Are you a buyer already, would you recommend buying - how much more downside do you see?
A: As far as the Sensex is concerned I do expect it to bottom out somewhere around 26,000 or so. However, there could be a bit more downside but we are not a million miles away from there.
Q: You said you like banks and consumer discretionary names. Therefore, within banks is it a good time to buy public sector undertaking (PSU) banks now or should you just stick to private?
A: We prefer private sector banks over public sector names.
Q: Do you think you will see sharper falls in the midcap space? In the near-term will more people want to take away money in a panic?
A: In such a condition more illiquid stocks, the mid and smallcap do tend to underperform, so there could be a lot more downside for these relative to the largecaps. Right now investor should stick to largecap names.
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