Manish Singh, head of investment at Crossbridge Capital, told CNBC-TV18 that equity markets could be in a sideways trend till the end of monsoon.
The current market selloff is explained by the forward-looking picture -- inflation could spike on monsoon worries and the RBI indicating it will not ease rates again in a hurry -- says London-based investment manager Manish Singh.
Singh, head of investment at Crossbridge Capital, told CNBC-TV18's Sonia Shenoy and Reema Tendulkar that equity markets could be in a sideways trend till the end of monsoon. He added that the onus was now on the government to not resort to inflationary steps such as hiking crop support prices and look at solving India's structural inflation problem.
Advising investors to not "commit fresh capital" to the market but also not indulge in panic selling, Singh said they were better off holding on to their investments in good quality companies.
"In investing, you don't sell your winners. One shouldn't lose sight of that fact."
Below is the transcript of the interview on CNBC-TV18.
Sonia: How are you approaching the Indian markets now? Today seemed to be a bit of panic selling that we are seeing not just in the front liners but also in the midcaps, how are you looking at it, the way forward now?
A: The concern is genuine in the sense that RBI governor Rajan has made it very clear that he has done his part and it is now for the government to follow up. It is a very valid point because the central banker is after all a risk manager. His job is to control inflation and if there are other measure by which inflation can run high, then he is going to be careful about it.
So, of course it is a concerning point and given that we are at the start of the monsoon season, I have a feeling that unless all this water passes under the bridge, the market is going to be sideways. So, you will not see a bullish intent.
But if you tie it to what is happening on the oil front, I do not believe that the oil prices are going to rally, so there is a bit of a silver lining and we may not have a very sustained sell off. But then we are still waiting for what is going to happen in US.
My feeling is that given the RBI’s policy and stance -- and justifiably -- means that suppport has to come from the government and hopefully they will not make the inflation situation worse by offering higher prices for crops. They have to look at the structural issue. They have to think about the crop insurance and various things going forward. Only if they play their part will the RBI play its part.
Reema: Especially with respect to yesterdays and today’s fall, what is anecdotal evidence suggesting in terms of institutional selling? Have we seen incrementally Foreign institutional investors (FIIs) trimming their portfolios in India or do you think the sell off largely has a retail tinge to it?
A: It is difficult to say. I haven’t seen the data. But what I would say is that whenever we make investments, we look at forward looking picture. And when you look at it: the RBI has raised the spectre of inflation, they have said GDP growth could worsen. And all this depends on what happens during this monsoon period and what happens to food prices and given food price is 46 percent of the consumer price index (CPI) basket.
So, like everyone, if you are a forward looking investor, you will not be happy to put capital or rather you will be trimming some of your investments thinking that there are not much gains to be made in the four-week or six-week period.
If there is any silver lining, it would be that let’s say the monsoon goes well and that inflation situation doesn’t worsen, I have a very strong belief that Fed is not going to raise rates a lot, they will raise by 25 bps. There was a comment from Fed governor that the Fed liftoff is a wrong word because the Fed rate is going to be more like crawling, it will not be lifting off.
So, I would say that there is a bit of silver lining in the second half of the year but that is all underpinned on how the government reacts to if there is bad monsoon and what happens to the food prices.
Sonia: What would your advice be to retail investors be in the Indian markets? The market has come off about 12 percent from its all time highs, is this a good time to be deploying some money or do you think that because of the concerns that we have underway, it is better to just wait this period out?
A: I would advise waiting, I am not recommending any new capital but there shouldn’t be panic selling either. If you are holding a good company, you should hold it. One of the best investment philosophies is you never sell your winners, that is how you perform. If you hold a good company and even if it has come off 10 percent, you don’t go ahead and sell it because at the end of the day you are investing in the company and that is something that one should never lose sight of.
In terms of new capital, I would not recommend that and that is purely because we have to see how this plays out. We know how populist governments can be and which means that they could raise and offer higher prices for crops for reasons we won’t get into. That could make the situation worse and which means that the financial institutions -- everyone -- will react to it if inflation becomes a concern.
So, in terms of new capital I wouldn’t advise but if you hold good companies then you never sell your winners, that is my advice.
Reema: According to you the upside for the market is capped perhaps, for how many more months do you think we will be in this consolidation phase and secondly if we do get a higher price for MSP as you were pointing out, how much of a negative will it be?
A: To your first question, so let’s say the monsoon season goes over for another six weeks or eight weeks -- however long it lasts -- then you will run into September when the question becomes how much the Fed is going to raise rates. So, what I see is that you will run from one to the other. I have a feeling that maybe you will have a quarter where the equity market is not going to do well, it could be sideways, you could have a false rally and a sell off which means that it is not a sustained growth environment.
Now, to answer your question about MSP, I don’t know how much higher prices they can offer but I just hope that even if they offer that, they nuance it very heavily saying that what if the government is going to do about going forward.
Because India’s inflation program is structural and it is a much bigger structural issue than various other things and unless they do that, you cannot have central banker who is going to cut. He shouldn’t because the central banker’s job is monetary policy, financial stability and stability of rupee.
The last thing you want is Indian rupee to weaken, current account deficit to worsen and inflation to come back into the system. So, it is not up to central bank, he is doing a great job, he has done an admirable job. It is down to government and I am sure they recognise it but they have to set out a path.
Even if they raise the MSP, they have to set out- what do they do about inflation, how are they looking to control food inflation going forward, what are the measures that they are going to take into account and that will satisfy a lot of people if you see measures coming out.