Arvind Sanger, managing partner, Geosphere Capital Management is highly bullish on the India story after the current account deficit (CAD) saw a smart decline in Q3. The CAD or the difference between the country’s exports and imports, has come down to USD 4.2 billion or 0.9 percent of the gross domestic product and has been aiding the positive market sentiment.
India has been getting robust flows from foreign institutional investors (FIIs) in the past 15 sessions. Despite FIIs offloading funds from emerging markets (EMs), Indian has clearly bucked this trend explains Sanger. He further adds that he has a target of low to mid-7000 on the Nifty for this year.
Sanger further says that the market is likely to be volatile from a one month perspective driven by all the global events and local news flows around the general elections. However, the market is heading higher as it has a lot of tailwinds in the form of CAD and expectation of positivity from the inflation numbers, he adds.
On what stocks to invest in, Sanger says the demand stories, infrastructure plays are likely to do well, but one must be cautious when dealing with the infra space.
“Their debt to EBITDA ratios are too high, so be careful when choosing stocks in this space,” he warns.
Sanger is bullish on the banking sector and says State Bank of India (SBI) is a safe play among public sector banks.
Below is the verbatim transcript of the interview.
Sonia: What is the sense you are getting, are we over playing this pro Modi trade and would you start to be cautious at this juncture or do you think there is lots more to go on the upside?
A: It depends on your point of view, if you are taking a one month view I think there is going to be some volatility. Volatility driven by global events and volatility driven by local news flows in terms of what is the blow by blow on the election polls and who is up and who is down all of that. So there could be some near term volatility but I think if one takes a 6-12 month view I think the market is clearly heading higher.
Obviously the election is a very important backdrop but don\\'t forget the current account deficit (CAD) has done some dramatic things which are much better than expected. And the other thing that we have to keep an eye on is inflation. And if the CAD is indicative of inflation, at least one factor that drives inflation becoming less painful then that is a positive but I think the things that can upset that would be if inflation numbers do not subside as we are hoping they will and that would be a negative surprise. And the other thing would be global risk-of although it seems like after the brief scare from Russia-Ukraine that seems to have receded. And barring that I think that India has fair amount of tailwinds so the markets should work its way higher.
Latha: What is your sense about the fund mood towards emerging markets (EMs), is it slightly changing because we have seen enough outflows over the past three-four months or even longer, but is the mood changing now incrementally?A: Not really. If you look at the major EMs whether its Hong Kong, China or whether its Brazil or Russia, EMs are not getting a bite for the most part. So India is clearly one of the outliers, Turkey obviously is not doing well.I think there is enough uncertainty that I wouldn’t call this an EM trade, risk tolerance is there as long as I can see catalyst and that is why some of the developed markets have been doing well because I think the catalyst in terms of improving fundamentals are visible. And India has been getting a pastel now because the assumption is that the growth has bottomed and things are likely to recover. Now with CAD and currency providing strong support, I think the expectations of a fundamental earnings churn which is essentially what we are playing for at the end, we are not playing this global macro trades just on no basis but on the expectation that earnings will follow then I think India is in a good position to go forward.
Latha: How much are you expecting by way of gains in 2014 from Indian stocks?A: I would say that our target price for the Nifty is somewhere in the low to mid 7000, so 7000-7500 on the Nifty. So basically from where it started the year about 15-20 percent move would be the kind of range that we are looking at in terms of full year upside that we have seen in the Indian markets.
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