The Indian market is attractively priced and a big push comes from commodity deflation, which impacts India favourably, says Manish Gunwani, senior fund manager at ICICI Prudential AMC. He says despite the volatility in the market over the past few weeks, retail participation, domestic inflows have been rather consistent, majorly because physical assets such as real estate are rather unattractive at the moment.
He is, however, worried about the fall in the rupee against the dollar, though the rupee has appreciated against many Asian currencies.
In terms of further earnings downgrade on the back of disturbing global news, Gunwani believes there may be some downgrades of 1-2 percent here and there at the margins. Going ahead, he believes there may be more interest rate cuts and there will be increased government spending at the state as well as the Central government level in the second half of FY16.
Gunwani says as far as sectoral growth is concerned, there is value across sectors - domestic cyclicals as well as defensives.
Below is the verbatim transcript of Manish Gunwani's interview with Latha Venkatesh & Reema Tendulkar on CNBC-TV18.
Latha: Are you budgeting for or estimating a much bigger cut or are we at somewhere of the lowest levels that one can buy?
A: In the short-term as we have kept consistently saying we cannot predict the market movement but overall I think the market looks attractively priced. Again from a macro view point commodity deflation does help India although you are seeing the negative effects of the capital flows getting affected right now. I think overall India is a commodity importer so it will benefit.
The rupee is more competitive now; that is one thing we are probably a bit more worried let us say three-six months back. Today if you look at the currency although it has still appreciated a lot against emerging markets (EM) currencies but at least vis-à-vis are big trading partners like US and Europe we are more competitive. So all in all I think there is reasonable valuation across sectors and to that extent the market looks reasonably attractive at this point of time.
Reema: We have seen 16 straight months of inflows into the mutual funds. Has the recent sharp correction and volatility deterred retail investors or has the steep corrections spurred then to put in more money? What can we expect in terms of retail participation going forward?
A: From whatever I hear that scenarios look pretty stable. I think the domestic inflows have been pretty consistent over this last four-five weeks of volatility. Again what we have been saying, the fact that physical assets look quite unattractive at this point of times especially real estate I guess there is fair amount of resilience in the domestic inflows.
Latha: We have got this disturbing global news probably slowdown in China may be a shrinking of emerging market growth numbers. All told would you say that there is scope for our earnings to get downgraded further or is it that the developed market piece is going to keep the global picture intact? Basically, are there more earnings downgraded?
A: I wouldn’t be surprised because coming back to what I was saying earlier I think at the margin the currency depreciation will help so you have in the Index not only IT and pharmaceutical but certain companies with global operations lot of it in developed countries so that will provide certain kind of buffer and there have been lot of cuts already. So, may be at the margin 1 or 2 percent here or there because all the commodity earnings etc have been cut quite a lot already.
At least for FY16 I don’t see much more material earnings’ cut on a composite. The composition may shift from one sector to another because of various things but on a composite level on FY16 at least I don’t expect much more material cuts from here.
Reema: Estimates for FY17 earnings growth is also very high and considering the demand is not picked up as per expectation would it affect the earnings picture in FY17 and would we soon start perhaps tapering our FY17 earnings per share (EPS) estimates?
A: It lot depends on how the domestic growth pan outs. There is a case to be made that you will see a much more rate cuts going forward; you will see much more government spending both at the centre level and at the state level going forward. So, fingers crossed but I do hope that come H2 FY16 you will see some signs of pickup because, if you keep it in context that lot of parameters you are at decade lows, things like credit growth and may be cement demand and all that so it should not take all that much to pull this economy just a little bit.
Having said obviously if global growth is soft you are not looking at a very V-shaped recovery; that is given but from the base we are in, I think there is a reasonable case to made that you will see some kind of recovery going forward in which case FY17 should be a good year.
Latha: What are your sectoral bets now, say your first Rs 100?
A: As I mentioned there is value across sector whether you take domestic cyclical or even defensives like IT etc in the context of new currencies rates I think there is value across sectors.
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