Mkt to consolidate further; bet on pvt banks: Mirae Asset

Rahul Chadha, head Asia Pacific Investment, Mirae Asset Global Investments, says that the central bank will have limited ability to revive the economy by cutting rates again aggressively. He also feels that the market will be in consolidation mode for next 2-3 months and the fair value for the rupee is between 53-55/dollar.   

Also Read: Nifty may see small upswing, go long: Sudarshan Sukhani Below is the edited transcript of his interview to CNBC-TV18. Q: What are your expectations from the winter session of the Parliament?
A: We expect the Parliament to function for some days and pass legislations. It is difficult to hazard a guess on that because the Opposition is also looking at this as an opportunity to voice their concerns on FDI in retail. So, it is fairly open-ended at this point of time. Q: How much store is the market putting in these reforms, if they do not go through do you expect to see a lot of disappointment?
A: Reforms are a key concern for the markets. In the last six months, the market saw a rally which began in June which was largely on the premise that we will see global slowdown, commodities correcting, which has not really happened. The government talking about reforms, increasing fuel prices and decision on FDI in retail saved the day for the country. The expectations are fairly high on getting more reforms from the government. The market is bound to get disappointed if the more reforms don't go through because the key concerns of high trade deficit and inflation still remains. I think the central bank will have limited ability to revive the economy by cutting rates again aggressively.   Q: Given your expectations how you are tactically positioned in your portfolio now?
A: We are pretty much invested with cash around 2-3 percent. In the last three months, the changes have been minimal. We have increased our private banks exposure. The portfolio bias is still export driven, largely to benefit from rupee depreciation. We believe fair value for the rupee is between 53-55 and one should be mentally tuned to about a 3-4 percent depreciation annually. Q: Do you believe that we may have the early makings of a bull market or is it looking like more of what we saw this year, a grind upwards?
A: We are looking at a slow grind upwards. For a real bull market to take place many macro tailwinds needs to be improved.  In the last two-three bull markets we had fisc which started on a much better note and current account was much better. These two elements are serious limiting factors for a bull market to come. Now, we are seeing a kind of pockets of excellence in the economy. If you check the market performance, some auto companies, retailers and jewellery retailers have done well as they had better footfall during the festival season. So, I think how the market will behave till these macro issues are taken care of will be stock specific. Issues like fiscal deficit, government borrowing coming under control and current account deficit becoming more manageable needs to be addressed before having a big bull market in the country. Q: The big question for a lot of people particularly after this year’s positive performance from equities is “whether as an asset class it can continue to deliver fixed income plus returns”. What are you expectations for FY13?
A: I think the market would continue to consolidate for next couple of months and beyond that one can look at returns of 10-12 percent for the market as a whole within that the variations will be fairly huge. In one part of the market the growth is minimal whereas in the other part of the market continues to grow at 15-20 percent. So assuming that PEs do not get further re-rated from current levels, at least for the section of the market which is growing at 15-20%. Q: Are you changing things around significantly though in terms of your overweight and underweight on portfolio exposure?
A: We still continue to bet on private banks but one has to be patient for returns. We also like pharmaceutical names with the basic caveat that the policy will not be harsh for these companies. We are selective in consumer companies. From a medium term prospective, valuations of large cap consumer companies look fair. Q: What is your view on high beta sectors like infrastructure and real estate? They have corrected quite a bit last couple of days. Would you use that as an opportunity to enter any of them?
A: We have some exposure to real estate and infra names particularly cement companies but we are not likely to increase that exposure beyond the limited percentage that we have at this point in time because we believe that the economic upturn will be a lot slower than expected. Again we are seeing some green shoots in the economy but unlike last time around they take a lot of time to blossom. Q: The big global risk right now seems to be emanating from the US. How are you calling that market and this fear about the fiscal cliff?
A: We are getting mixed signals from the US. The housing data out of US is very encouraging sight but outside that fiscal cliff remains a concern. There is news on some solution between the Democrats and the Republicans on that and we saw decent rally in markets. Besides that the market would be slightly uncertain till there is clarity on fiscal cliff. As we enter 2013, we are bound to see growth, bit of a slowdown in the US. But the bigger concern remains in Europe. The policymakers have shown maturity in Europe to prevent a crisis of the Euro Zone besides that the growth is slowing down and this austerity is going to take a bigger toll on growth rates.