The market is already rallying in the hope of a single party win, says Dharmesh Mehta, Deputy CEO of Axis Capital. He says the markets will be disappointed if BJP does not manage a sweeping majority in all four states.
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He says if there is good news on the political front, then the markets may not react negatively to news on US Federal Reserve tapering.
He says if investors can envisage a stable government, then India will outperform other emerging markets. "I am not of the belief that developed markets will perform; they have performed well last year and they may continue to do so, but India has got this big event and if that falls into place, you will be surprised with the kind of FII inflows India can get," says Mehta.
Below is the verbatim transcript of Dharmesh Mehta's interview on CNBC-TV18
Q: The market has been in a positive frame of mind expecting the Sunday event to pan out in favour of at least the market sentiment. How are you approaching the index now, do you think that before the end of the year the market could set the stage for new highs?
A: The markets are already placed on a rally, part of which has already happened in anticipation of a stable government or one single party forming the government. So, part of the rally is already built in and Monday will be the test case when people will be able to identify the trend whether that is happening or not.
You can't predict the elections today so it all depends on what kind of strength the BJP is able to get in all the four states, whether they can get sweeping majority in all the four or they come back with 50-50, then the markets will be a little bit disappointed. So, it is going to be very event driven so I would not look at the year end but it is more in the next six months is what you need to take a call on - what the market should do from now on.
Q: How much weightage would you give to what is going to come from the US, the job’s data that will come out later today which could have a guidance to what will happen as far as tapering goes, how much importance will you give to that, how much will you give the election results?
A: Currently I think the election result has a much higher weightage than the US tapering. Obviously US tapering can impact us in a major way but if you also have bad news on the political front then it is a double whammy but if you have good news on the political front, the markets may not react that negatively to the US bad news if at all.
Q: The theory in the market is although the investment cycle recovery may take a while, the building blocks are now being put into place, so in a sense it would be a good idea to nibble into some of these capital goods names etc and we already seem quite a bit of a run up there, what is your thought on how to approach this pocket?
A: I think people will have to take a call saying whether they can see a stable government and based on that the capex on the companies will be put in place. In case if we don't see that and we see a hung parliament which we believe is going to come down in two years, the capex plan which people are talking about may be delayed further then this sector gets impacted the most.
So I think it is very difficult to predict today, what is going to happen but looking at the trend today, whatever the election results or the exit polls people are seeing, people are trying to put some bets but I think the larger picture will be known in the next one-two months once the state elections are out and how the mood is continuing in favour of Bharatiya Janata Party (BJP) if at all.
On that basis people will start taking it because the valuations are decent in these sectors. It is not very cheap, it is not very expensive and a lot depends on whether those orders come into those companies. That depends on whether corporate India starts putting money on the ground. So it is a very event-driven kind of a view. I would rather be very cautious right now and not try to pre-guess what is going to happen.
Q: What is your sense on how flows may pan out because experts that we have been speaking with believe that even in 2014 developed markets will continue to outperform emerging markets and even within emerging markets India is at the bottom rung of the ladder because now we are seeing outperformance from China, etc?
A: As I told it all depends. If people can foresee a stable government India will outperform other markets. The flows will definitely come to India in a big way if that happens. So, I am not of the belief that developed markets will perform; they have performed very well last year and they may continue to perform well but India has got this big event and if that falls in favour you will be surprised with the kind of inflows India can get and the kind of confidence which comes back.
In last two to three years nothing has happened actually in the corporate India. So, it will be now when people start seeing things moving on the ground, your growth rate starts going up. All the negatives that has happened in the last one or two years and it won’t be that difficult to beat the last two years in the coming two years for corporate India on the earning side if things fall in place. So, it is all event driven but if it is in your favour, markets can outperform significantly than what people think right now.
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