India gets time to tackle deficits on Fed move: HDFC AMC

Federal Reserves' decision of not tapering for now, gives India some more time to set right its existing imbalances, says Prashant Jain, Ed & Cio, HDFC Asset Management in an interview to CNBC-TV18. "We have to bring down our fiscal deficit and current deficit. You will get more capital when you are strong and capital will not come to you if you are in a weak position. Therefore, we need to set right the imbalances and make full use of this small window because ultimately Quantitative Easing (QE) will be withdrawn," he added.

Accordng to him, if diesel price is increased significantly then fiscal worries will abate to a large extent. Sharing views on the market he said, the quality premium is extremely high in the market now. “There is good value in this market and that value will unfold whenever we manage to set right these twin deficits," he elaborated. Also read: Mkt rally won't sustain beyond 5%; focus on quality stocks now: Kotak Instl Below is the verbatim transcript of his interview on CNBC-TV18 Q: It is a party on Dalal Street this morning but the caution that has been exercised by most is it may not last. What is your view? A: Certainly the postponement or withdrawal of taper gives us a window to set right the imbalances which are there. These imbalances are not going away but it is a nice window to make use of it. Ultimately we have to bring down the fiscal deficits and the current deficits. You will get more capital when you are strong and capital will not come to you if you are in a weak position. Therefore, we need to set right the imbalances and make full use of this small window because ultimately Quantitative Easing (QE) will be withdrawn. Q: For an equity person who has to be in equities what would you advise now, would it be that the terrain has changed at least fundamentally for say oversold companies with dollar debt? Are there buy opportunities there? How would you buy in a market that is already up 8 percent from the recent lows? A: 5-10 percent volatility is always there in stock markets, it is nothing very significant. In my opinion this is a market where quality premium is extremely high. How stocks or sectors perform would vary depending on how the markets do. If market does well that means risk appetite is coming back. Then very different set of companies and sectors will perform. However, if markets don't do well then there could be a risk-off again and you may again see defensive outperformance. I personally believe that meaningful returns is not there particularly in the consumer space, they may fall less or not fall in a down market. But I think the room for total returns is not much. Q: For the market as a whole are we still in a bear market rally in your assessment or is this start of some sort of a bull market trend? A: Market has actually been range bound for quite some time. Market is where it was five years back. Sensex in January 2008 and today is virtually at the same levels. The price to earnings (P/E) multiples has moderated and if you remove some consumer companies which are expensive, then the P/Es look meaningfully lower. There is good value in this markets and that value will unfold whenever we manage to set right these twin deficits. But see the biggest returns are made when there is some uncertainty. If you don't take calculated risks then gains also to that extent would be much smaller so this is a market which offers many opportunities. Q: Would you now look at this market to sell? A: We don't try and forecast the markets very short-term because we believe we are incapable of doing so. However if you have a one-two year view I would not sell because we cannot ignore the big picture that the P/E multiples are quite low particularly consumer sector where there is lot of value. The long term growth drivers of India are still intact, they are not going away. The government has been taking lot of steps to set right the bottlenecks, the issues facing the roads, the coal, the power sector and these should bear fruit over next few quarters. Even, the fiscal deficit and the current account deficits have also peaked. And if diesel prices are increased significantly, I think fiscal worries will also abate to a large extent. Current account is showing very good improvement and those numbers may just surprise us on the downside.