US Fed guidance for 3 rate hikes, rising $ a worry: Edelweiss

If there is a 5 percent correction from the current levels, valuations are attractive, he said.Below is the transcript of Nishcal Maheshwari’s interview to Reema Tendulkar and Prashant Nair on CNBC-TV18.Reema: What is the mood now? How are investors feeling as we enter into 2017? Most of the big triggers for the year have now come to an end and, are prices looking attractive? Is all the bad news in the price?A: I would be more worried about what is happening around the world. Yes, India has got some challenges at the moment, but that is short-term. But I am worried about what is happening around the world and given that what Fed has said about, they have increased a quarter percent and they have indicated that one of the three raises in the next year. That is more of a worry for me because that is negative across the world and for all emerging markets. India is definitely much better positioned than other emerging markets, but then challenges of an appreciating dollar always remains.Prashant: In terms of the flow that you are seeing, what are you seeing? Non-stop selling, incremental selling by foreign institutional investors (FII)? Locals have been buying over the last many days.A: December is a very slow month for most of the people and given that everybody expected that there is going to be a Fed rate increase, the general activity has been much lower. Whatever selling you are seeing, I do not think that is the general mood of the market basically, but yes, we have seen incremental selling happening. But at the moment, it is being fairly well countered by domestic buying and that is why, you do not see much fall in the markets.Reema: With three Fed hikes in 2017 as indicated with a rising dollar, what happens to India in terms of the Nifty levels? Do you see us heading back to our March lows of nearly 7,000 and lower?A: I do not think that is the number, which we have anywhere close to that in mind. Yes, there may be a wee bit of challenge for the coming quarter and the next because of the local issue about demonetisation. But in the longer term, I do not see the macros of India deteriorating. If anything, India is in a much better position than all the emerging markets. You look at it given that the 10-year yields have gone up in the US by almost around 80-90 basis points and still the rupee has held on very well.So challenges, yes there are, but around 7,800 there is good amount of buying and the valuations also look attractive at those levels. So, if there is a correction of 5 percent from here, I see a good amount of buying happening in the market.Prashant: Just talk about micro finance companies. I am sure that you had discussions at office with your analysts. I don’t know if you put out a report yet. What do you make of the noise around micro finance especially in Maharashtra, Uttar Pradesh (UP) -- these are the two big states with exposure?A: The largest exposure is down south, the north Indian market is getting developed. UP presently the atmosphere is politically charged. So there are challenges on the ground at the moment in case of UP, in pockets in Maharashtra that is what my analyst says. I don’t think these are challenges which are something what has happened way back in Andhra Pradesh. At the moment, there are a few challenges which we see and that is more to do with that politically charged atmosphere.Prashant: How do you determine what is a good price to enter? One of the problems is that unlike other loans which are secured these are unsecured so in case of a default the loss ratio is very high, so it becomes a bit binary in that sense. So, either you get paid back or you don’t?A: If you look at history it is not that they are become unsecured loans today it was always an unsecured loan industry. Then still if you go back and look it into defaults most of these companies are anywhere between one to two percent. So, NPAs are not higher for any of them basically for the last 12-15 years when the industry existence has been in the country. I do not see that environment changing. What we have to here understand is that basically this is a whole bunch of people which are not a part of the regular banking circle and then they know if they are going to default today they are not going to get a loan again.Given that now they have sort of a CIBIL score also for the micro finance institutions (MFIs) so they are tracked very well. I am saying basically I don’t think these guys are going to default willingly. Now there may circumstances, which may push them to delay the payments for a month or two because of whatever the reasons on the ground are at the moment. I don’t see that the whole industry is sort of a situation is where it is blowing up or something like that.Reema: We have spoken at length in the last one month about the impact of demonetisation on sectors on market etc. You believe it has had an impact on investors as well could you take us through the rational there?A: It is more to do with the international market rather than domestic because domestic people are talking about this quarter and the next where the impact is going to be. However, what I was more worried about is the international market impact rather than the local market impact.