Valuations turning cheap; good time to invest: Macquarie

Global sell-off has nothing much to do with India, says Rakesh Arora, MD and Head of Research at Macquarie Cap Securities. More clarity is needed on the European Central Bank’s negative rate policy, he adds. While the world is declining, India is static, which is a much better scenario, he says. The fundamentals in India are good, he says adding that same thought is echoed even by the foreign institutional investors (FIIs).Discussing the domestic market, Arora says that market currently is highly over-sold and the valuations are extremely cheap – a perfect time to enter. Arora does not expect India to underperform in long-run.While the earnings season is already factored in, there are hopes intact on the upcoming Union Budget, he says. Two theme that would be catalyst for the market are government-led infrastructure and urban consumption on back on expected Seventh Pay Commission, he adds. Below is the verbatim transcript of Rakesh Arora's interview with Latha Venkatesh and Sonia Shenoy on CNBC-TV18.Latha: The global markets take a plunge, Asian markets take a plunge and we take a deeper plunge. How does it look to you now, are these waters you would fish in?A: Market is worried about the global financial banks, which have come under pressure and until unless there is clarity, first on the block is Deutsche Bank. They have announced that they are going to buy back some of the bonds, which should help soothe the sentiment. However, there are questions, which are being raised about efficacy of the negative interest rate which European Central Bank (ECB) is following and what is its impact on the banks earnings etc globally. So this is a different question, which has now been raised. Until unless clarity emerges, unlikely that sentiment globally will improve dramatically, this has got nothing to do with India but we are all connected.Sonia: What should the prudent strategy be at this point in time? Up until now, capital preservation was the best strategy to adopt. Do you think that still holds or at some point you can perhaps start to look at the stocks, the quality names that are at attractive levels?A: Fundamentally if I try to see if there are any shorts in the market, it is difficult to pinpoint even one name. So markets are highly oversold and valuations are extremely cheap. So anybody looking to create a portfolio, this is the best time. So foreign institutional investors (FII) have been forced to sell some of their best stocks that were holding for long time. So, consider companies which were having FII premium of 10-20 percent are now available without premium. So I think this is the right time for investors to start nibbling and building a good portfolio.Sonia: Wouldn't you be worried about the fact that even domestically we don’t have any major positive triggers coming through, we haven’t seen any great improvement this earnings season, there is no big expectation from the Budget either?A: That is all factored and nobody expected anything from this earnings season and it has not been any worse than what was expected. Don’t give up hope as yet. Government is still there and Budget is still due on February 29. So we should expect something better.Latha: With respect to the financials, FIIs are already overweight India and within India they are overweight financials. So do they have a lot more to lose even the private sector banks?A: Obviously, now private sector banks have also fallen. Only some blue-chips like HDFC Bank etc have left and we are seeing selling in some of these defensive counters also come through. Indian market you cannot sell out fully and go, there is not enough liquidity. So it is going to hurt their existing position more than it is going to help them.Anuj: This round of fall clearly has more to do with the domestic cues than global cues, is there a risk that India now starts to underperform and maybe we have a big time wise bear market in place over the next few months?A: Only day before yesterday, India's gross domestic product (GDP) growth number is revealed, which is best in the world.Anuj: The earnings picture, the non-performing assets (NPAs) we saw from banks, the guidance picture from IT companies, the two big sectors are not contributing, 48 percent of the market is not contributing.A: If you look at the world, it is declining, we are static. So static is better than going down.So I don’t see Indian markets or fundamentals are any worse than anywhere else in the world and in fact, all FIIs that we speak to believe India is the best placed among all the major countries. So I would tend to think that as soon as this risk off trade is on, India should get large share of inflows.Latha: So you don’t fear underperformance in this downtrend from India?A: One-two months is very difficult to say but one year, I don’t think India is going to underperform the other economies.Latha: Exactly, what are you telling your investors to buy?A: Everything looks like a buy at the moment. Clearly, two themes we have been pushing, one is government led infrastructure and other is urban consumption in view of the Seventh Pay Commission coming up. So these are two themes where there are catalysts coming up and investors can benefit.