Rupee to stay stable ahead, Nifty rangebound: HSBC India

On Friday, the Central Statistics Office (CSO) said it sees the economy growing at 4.9 percent in FY14. Dave is not concerned whether there will be an upside or a downside bias to this figure, but says the larger message that the market will be looking for is whether growth has bottomed out and that increasingly appears to be the case.

Below is the verbatim transcript of Hitendra Dave's interview with Ekta Batra and Anuj Singhal on CNBC-TV18.

Ekta: There is an exclusive from our sister channel that maybe polls could start March end to early April. In that sense where would you think the Nifty would possibly trade uptil then? Would it just be range bound trade or do you expect high amount of volatility pre-election?

A: For the last 3-4 months ever since the country went into an election mode there seems to be a sense of everything being on hold, a lot of investment plans, lot of investors, if you talk to investors at our conference a lot of people are seeking clarity on the political outcome and to the extent that you now have elections likely to take place if you so say towards the end of March or early part of April, clarity and certainty will always be more welcome now, ultimately whether we get the kind of decisive verdict that markets would prefer that obviously time will tell. Till that time I would think we will be within the broad range that we have been seeing for the last two months or so.

Anuj: The theme for last 2-3 weeks has been the currency, especially in emerging markets. We saw quite a bit of mayhem in most emerging markets except India. Do you think that kind of trend is likely to continue and do you think the Indian currency can show some more strength?

A: Ever since some of the EMs movements started about two weeks back or so what you have clearly noticed is that the rupee has tended to be far more stable than was definitely the case towards the middle of last year and you can attribute that to a lot of the work which the authorities have done, our current account is down quite sharply. On a monthly basis your current account deficit (CAD) is down to USD 1.5-2 billion and on a quarterly basis about USD 5-6 billion. I think that level of financing is more than adequately possible even without relying too much on portfolio flows, because you will have a natural amount of FDI flows which will come in etc.

So I think what we have seen over the last 2-3 weeks is a reflection of the market assessment of the improved fundamentals on the external front for India which is on the current account side. Parallelly we have seen the fiscal deficit. Clearly it appears that we will be making it to the 4.8 percent number, if not do a little better than that. Inflation is trending little favourably, even though it is too early to say whether it is longer term trend or not. So to the extent that your currency last year was wobbling a lot more, the factors that caused it, a wide current account, relatively high ownership of debt from offshore investors, all of those are no longer existing. So I would think that over the next few weeks or months possibly this trend of rupee remaining by and large stable even if there is volatility offshore will continue.

Ekta: We have that 4.9 percent GDP estimate which has come out from the Central Statistics Office (CSO). Do you expect it to possibly have an upside bias or a downside bias?

A: At this juncture it is very difficult to call whether it will have an upside or downside bias. We know that this is what they call the quick estimate or the early estimate and thereafter they get incremental data from the surveys of industries and then that might throw up either side correction. The more important part is whether the deceleration of growth has bottomed out. Whether it is 4.8 percent at the end of the year or 5.1 percent, that is a little statistics here or there, but the larger message that the market will look for is whether the growth has essentially bottomed out and that increasingly appears to be the case.

The positive drivers whether on the agri and primary side or through the external sector or the net exports, I think both of those are quite positive. We spoke about elections as a very first part of this interview and I think towards the start of the new financial year if the political uncertainty encourages investors whether primary investors or secondary investors to start taking decisions much more with much more confidence that will be the trigger for upward cycle thereafter. So at this juncture I am not particularly fussed about whether there is a point one downward or upward correction.

Anuj: What is your house view in terms of your base scenario for FY15 GDP growth and your best case scenario in that case?

A: Our base case assumption is that there will be a slight pick up in growth over the next financial year. We all know that the main significant move up factor depends essentially on the revival of the capex or the investment cycle and that really goes into a slightly more wider issue, because we do have challenges with excessive leverage, with a large number of the industrial sector in India and also reflected therefore through stresses in the banking system. My own sense is that to move from the current levels of 5 percent plus-minus into a significantly higher number will really depend a lot on how we manage this transaction of deleveraging in the corporate world, yet at the same time creating a policy environment, political environment, confidence environment which encourages investors, whether domestic or offshore to start putting their capex work back on plan.