It is probably the right time to sit tight for some more time and rebalance portfolios to reflect the recent developments, Vinay Khattar, head Edelweiss Investment Research, said in an interview with Moneycontrol’s Kshitij Anand.
Q. FPIs pulled out over $4 billion from markets in three weeks. Are they still Overweight on India or are we back on Equal Weight or Under Weight?
A. Most of the foreign investors (FIIs) continue to remain cautious on Indian equities. Interestingly, Nifty priced in US Dollars is nearly the same as it was a decade ago.
Similarly, Nifty EPS in US Dollars hasn't risen for the most part of this decade. This partly explains why FIIs have been reluctant participants over the last few years. And, would probably remain until earnings catch up.
Q. After US Fed rate hike and rise in US bond yields, what is your outlook on the US markets?
A. The US does appear to be in a late cycle. Replicating the economic growth of June quarter or earnings growth of the last two quarters will be tough.
The US Fed is now unwinding its balance sheet at the fastest pace in a decade. This probably will cause markets in the US to de-rate in times ahead.
Q. Do you see more downside in Indian markets? Is this the time to buy or sit tight?
A. Well, it is probably the right time to sit tight for some more time and rebalance portfolios to reflect the recent developments. Another round of correction will take markets to a zone where one can pick quality stocks at appropriate prices.
Q. Most analysts complained about high valuations of Indian equity markets. Do you think that concern is now somewhat taken care of, or we are still trading above historical averages?
A. The frothy nature of the market has become more normalised. We are still trading higher than average valuations of 16 times one year forward earnings.
Q. Do you see RBI hiking rates sooner than expected? What is your assessment?
A. The Reserve Bank of India (RBI) has been more measured in its recent monetary policy. It seems affixed on giving growth the priority for now.
However, the external stress, fiscal tightness, and inflation dynamics could trigger another round of hikes from the RBI.
Q. If FIIs are booking profits or pulling money out of India thanks to the fall in rupee. Do you think that FIIs heavy stocks could be under weather for some more time?
A. FIIs haven't bought Indian equities heavily in the last three years. This has made their selling shallower than earlier corrections. In the short-term, FII selling may put pressure on a few of their favourites but only the ones which do not deliver earnings growth.
Q. Where do you see the currency headed in the next 6 months or by FY19?
A. We are expecting the rupee to trade in the range of Rs 74/$ on the downside to Rs76/$ by FY19.
Q) Volatility is part of equity markets. But, do you think with the change in dynamics both global as well as local, investors should go underweight on equities and look at other asset classes such as fixed income at least for the time till things get settled?
A. Portfolio allocations should have tilted towards fixed income a while ago. There is a case to have some allocation towards bonds and fixed income products but that's tactical.
At present, investors who have raised cash should use further corrections to increase allocations to equity in a staggered manner. Stocks would always outperform bonds over the long term. So fixed-income allocations should reflect this reality.
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