In an interview with Moneycontrol's Kshitij Anand, Dharmesh Kant speaks about his view on the currency, and stocks that he thinks are good bets
The rupee has been falling vis-à-vis the dollar for quite some time now. In fact, it is the worst-performing Asian currency in 2018, having depreciated over 15 percent since January. Foreign investors have seen their investments in India suffer as a result, because the fall in the currency's value has wiped out a significant amount of their gains.
At such a time, when prices of crude oil are rising and the rupee is somewhat of a free fall, investors can't help but wonder where it is headed and how much more of hit they would need to sustain on the portfolios. Dharmesh Kant – Head Retail Research, IndiaNivesh Securities, believes the rupee could stabilise between 72 and 74 to the dollar in the next 6 months, but could spike to 79-80 to the dollar in the interim.
In an interview with Moneycontrol's Kshitij Anand, Kant speaks about his view on the currency, stocks that he thinks are good bets, and about what he makes of the macro-economic environment, both in India and abroad. Edited excerpts...
Q: Foreign investors have been consistently pulling out money from Indian markets. What is your view on them?
A: The very fact that foreign investors have consistently been pulling money out, makes them neutral-to-underweight on India. In a scenario of accelerated rupee depreciation, rising interest costs and crude oil prices, foreign investors have historically stayed away from emerging markets like India.
Uncertainties on account of macro headwinds like the deteriorating fiscal deficit, higher input costs and upcoming general elections in 2019, will keep them on sidelines for a while.
Q: Where do you see the rupee by the end of FY19? Some experts are even penciling a figure of 80 to the dollar.
A: My own sense is that in the next 6 months, rupee should stabilise between 72-74/dollar. However, in between, a spike towards 79/80 may happen.
Q: Can you name four stocks that you think are now available at attractive valuations?
A: Bharat Electronics, Can Fin Homes, RBL Bank and SAIL.
Q: Which sectors are seeming attractive at the moment?
A: FMCG, private banks, pharmaceuticals and select PSBs.
Q: Do you think investors should go underweight on equities and look at other asset classes such as fixed income, at least for some time, till the prevalent volatility in the market dies down?
A: I think in present global scenario and context, bullions such as gold is likely to deliver the best absolute returns followed by FDs (fixed deposits). Diversification has always been a prudent strategy, only one needs to keep weightage of asset allocation dynamic.
Q: Morgan Stanley said in a report recently that US equities are at a tipping point. Do you agree?
A: Yes, I do agree. US equities are peaking out. Major indices like Dow Jones, S&P 500 and Russell 2000 (mid and small cap) have been in the 10-year bull market.
Corporate earnings have delivered growth for the last 8 years. Now, US is entering a zone of the high base with rising interest cost, inflation and energy prices. A dip in home sales and motor vehicle sales are lead indicators.
Historical weight of evidence suggests that inflation above 2 percent mark for three consecutive years, rising energy prices and a higher interest rate trajectory coupled with GDP growth in excess of 2 percent for previous 3 to 5 years, leads to depletion in corporate earnings with a lag effect.
Markets usually discount it 3 to 4 quarters in advances. The same played out in the US market crash of 2008-09. Though this time around, the US scenario is not so alarming but a slowdown in 2019 and 2020 is very much on the cards.
Institutions like IMF have forecasted the US GDP growth to slow down to 2.5 percent in 2019 and 1.8 percent in 2020, after growing 2.9 percent in 2018.
They see top 14 countries, which contribute 70 percent of the world’s GDP (around $60 trillion), to decelerate in 2019 and 2020, the only outlier being India.
Q: Do you more downside in Indian markets or is this the time to buy?
A: Changed macros were chiefly responsible for the D-Street mayhem. Higher input costs, rising cost of funds, steeper fuel prices, depreciating rupee will hurt margins and profitability of domestic focussed companies down the line.
Reduced spending by the Government, deteriorating fiscal position and upcoming general elections do not augur well. It is better to sit tight and observe events unfold till any semblance of rupee/crude price stability or reversal is seen.
Q: Most analysts have complained about high valuations of Indian equities. Do you think that concern is somewhat taken care of now?
A: We are trading around historical averages now but the aforementioned concerns can derail the expected earnings growth in the 2nd half of 2019 significantly.
Q: After the recent rate hike by the US Fed and a subsequent rise in US bond yields, most experts feel RBI could hike rates sooner than expected. What is your assessment?
A: We are in a higher interest rate cycle which is likely to continue in 2019. Timing the differences of rate hikes by RBI based on ground realities is a right step which gives a much-needed breathing space.
Q: If FIIs are booking profits or pulling money out of India, do you think that FII-heavy stocks could be under the weather for some more time?
A: Looks likely. After 2008-09, this has been the biggest ever spell of FIIs selling Indian equities and debt.Disclaimer: The views and investment tips expressed by investment expert on moneycontrol.com are his own and not that of the website or its management. Moneycontrol.com advises users to check with certified experts before taking any investment decisions.