RBI surprised everyone with a CRR cut...
The outcome of the RBI's third quarter policy suggests that it is open to growth more than it was a few months ago. By the end of FY14, the market could see further loosening in interest rates. In our view, the RBI could reduce an additional 50 basis points between now and FY14 end.
What are your views on Indias overall economic and market conditions
From a sentiment perspective, India is in a much better position than it was six months back. There are still some concerns in terms of the twin deficits that we are running. The market has rallied on expectations that things have improved. From here on, market will consolidate and look for real changes on the ground.
At present, there are only talks that economic conditions will improve and that GDP growth will start to move up. We are yet to see any signs of that. But, this is the time to build a portfolio by looking at growth stories. If sentiments do turn positively and meaningfully, a lot of stocks that are not part of the benchmark will get re-rated significantly.
There is a view that the Budget is likely to be a more populist one, considering that this is an election year.
In the last two decades, pre-election Budgets have largely been expansionary. So, going by history, chances are that this years Budget could be expansionary as well.
Having said that, it may be a little more conservative than what the market is expecting. For instance, our fiscal deficit target for FY13 is 5.3% of our GDP. The market, however, is factoring in closer to 5.5-5.6% and anything above that would be a concern and would indicate that no progress has been made since last year.
How do you foresee Indian markets this year
Our target for the Sensex is 5-10% higher from the current levels. We are a bit more sanguine than the bearish guys. From here on, it is not based on what the US or Europe would do; it is more about what the Indian economy can itself deliver. I would have been more bullish, had it not been an election year. So, if there are elections held all of a sudden or if they come sooner than expected, then a lot of the expectations in the market would go for a toss.
Your thoughts on FII inflows in 2013...
It depends on the economic numbers. Generally, if things become better, a lot of domestic institutions will also participate and an equal number of domestic investors will start to move their funds back to equity markets, which would mean domestic institutions would have bigger AUMs to deploy. India has been getting foreign capital inflows in the range of $12-30 billion on a consistent basis in any given year.
This year has been quite exceptional for us. It depends on how the economy pans out. If it pans out correctly and policymakers are able to manage it the right way, the number should not be an issue because whatever the FIIs invest, it would be higher than where you are today.
What is your strategy investment strategy for 2013
The focus will continue to be on cash flows and return ratios. A lot of action will be on mid caps and small caps, that is, the broader markets. The benchmark will continue to remain consistent.
Within benchmark, we think pharmaceuticals and media are expected to do well. We are constructive on pharmaceuticals, especially the mid-cap companies.
We are also positive on some of the names in the mid-cap appliances space and generally constructive on mid-cap companies with strong cash flows, good RoE and decent valuations.
It will be good to buy PSU banks over the next three years, simply because valuations are low as a result of stress in the asset book. As for real estate and construction companies, we would prefer to see the companies considerably improve their balance sheets. Interestingly, one of the star or contra-bets of the year could be telecommunications.