Vikas Khemani of Carnelian Capital spoke to Moneycontrol exclusively on how the market could react to the exit poll results that predict a strong win for the BJP-led National Democratic Alliance (NDA). He thinks that after a couple of days of short covering, market should get back to “normal” but the electoral win will only strength the case for India further.
Your first thoughts on the exit poll?
Most of the market expectation was of continuity. Of course, there was a little bit of chatter in the market that the number of seats might go down to 300-325 or whatever. I always believed that they will probably get between 350-400.
How will the market react to this result?
You might see a little bit of short covering. Other than that, I don't see major change because it is a vote for continuity. Market will be back to normal in the next 4-5 days.
How much movement do you think can be triggered because of these shorts getting covered?
It's very hard to call out. A 2-4% kind of movement can be there between Monday and Tuesday by the time actual results come out, because these are still exit polls. We will have to wait out for the real results but broadly the trend is clear.
Is a 10% rally possible over the next week or so?
That depends on what kind of follow-through buying comes from the domestic investors and foreigners who have been waiting on the sidelines.
What kind of quantum of money do you think can actually come in over the next one month?
I don't know about next one month. One month is too short a period of time to call out because people would sit back and then decide their allocation with a long-term perspective. But I would expect the trend to be very, very significantly positive.
Why so?
I expect very, very significant buying because of two things. Firstly, Fed rates are expected to come down. That always leads to flow towards emerging markets, which will also include India. Second, this positive vote might also boost the confidence. A combination of these two could lead to significant inflows in the next 6 to 12 months.
In the last two months or so, this "sell India, buy China" kind of trade has been playing out. With this kind of outcome, do you see it strengthening the case for India?
No, I think "buy China" was a more technical, short-term buy. Nobody is convinced of China's long-term perspective. The only reason why allocation towards China has been going there is because it is a very, very cheap market from a valuation standpoint. It’s a 10-15% kind of trade. India's is a structural story. The conviction around India's growth story is very, very high. With this event, it only gets strengthened.
Any risks to market now?
The only argument some people can make against India is about a bit of a valuation. But that is not a very strong argument. With the kind of growth which is expected to continue, I think India will deliver superior returns as compared to any other market. By the way, India has been one of the best-performing markets in dollar terms across the globe for the last 20 years. So I see this continuing to remain very, very positive. More and more money will come towards India.
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