See 15% returns from mkt if rupee stabilises: Axis Capital

After the Reserve Bank governor soothed frayed nerves in a hastily called press conference on Thursday, there is a  visible improvement in rupee's movement today. The finance minister and the Reserve Bank are unitedly trying to calm fears of a rupee fall, says Nandan Chakraborty of Axis Capital. The rupee opened trade at 63.15 to a dollar.

Also Read: India on investors' map; see great opportunities: Axis Cap He also remains optimistic about the market situation despite steep cuts seen post Diwali. He advises investors to stay with defensive sectors like IT and Pharma and prefers export related rural themes for the short term. He sees 15 percent returns from market if rupee stabilises and sees unique business models in media and beverages to outperform in long term. Chakraborty is positive that the food inflation and interest rates would start falling in next few months. Below is the verbatim transcript of Nandan Chakraborty's interview on CNBC-TV18  Q: The immediate matter markets have been stalling since Muhurat Day at 6,330 mark, do you see a deep cut or is it just beginning to trade in a lower range?
A: Markets have been in a trading range for quite some time. It is like you cross a milestone but at the end of the day, you have crossed the milestone that was crossed 6 years back. So 6 years you have derated. Whether it was worth it or not is a different issue. I think it will remain in a trading range because even in December when you get state elections, you won’t be sure whether we will have strong leadership or not in politics. It is not so much which party comes to power as who comes to power as the Prime Minister because you have shown time and again that a good leader can bring the states and the Center together and so on. That is one part of it.
The other part of it is obviously the rupee stands for what is happening to growth of the country. Off late we have seen a lot of unison between the Reserve Bank of India (RBI) and the finance ministry being able to calm down its fire and so on. Recently, the minute the rupee started depreciating, the RBI governor started its OMOs. So you know that things will be controlled as far as things can be controlled. Q: Do you think markets can still test that 5,100 or do you think at least that is out of the way?
A: If we get the worst case which is that politics is a mess and the world is a mess, you never know it may recover but it seems unlikely. Ultimately anything can happen but it seems very unlikely at this stage that it will be revisited from what we are seeing today, in terms of both politics as well as the global scenario. Q: Yesterday governor Rajan seem to indicate that a rate hike perhaps is not imminent at the moment, is there a reason for the stock market to rejoice on this development?
A: Very short term. So on one hand, as a matter of fact, our view is that rates might, because of the monsoons and so on, start coming down. So agricultural inflation, which has been very high, agricultural inflation till 2-3 years back actually used to help farmers, which is a majority of votes. On the other hand now what has happened is because it has gone beyond a point, it hurts the wallet of the farmer. That has been the case for the last two-three years. So with good monsoons, good kharif crop and the coming rabi crop because of the reservoirs being full, you will see agricultural inflation coming down. The other part of inflation, which is to do demand/supply manufacturing - not much is going to happen in the next almost one year.
The third part which is the crude part is really related to the rupee which is again chicken or egg. So essentially I feel the controllable part of the inflation will start coming down over next few months. Q: What is your view on the just concluded earning season, do you see more upgrades or do you see downgrades ahead?
A: The previous quarter, which is a reflection of the quarter before that – we must remember - actually even our own analyst, the results were better than the worst expectations that we had. And this results which is the previous season – what has happened is as the rupee stabilised, things started getting better than our expectations.
So we expect a round of possible upgrades but the reason we are cautious is what has happened is the vicious cycle in India where rupee tailwinds and therefore you are looking at downwards at everything sentiments and so on and therefore consumer discretionary goes down, that whole vicious cycle has stopped but the virtuous cycle hasn’t started. So that is roughly where we are at.