Expectations of rate cuts in 2013 and deferment of GAAR by two years spell good news for Indian equities, believes Nirmal Jain, chairman, IIFL. Jain says the government’s disinvestment initiatives could play a part in reviving retail interest. In an interview with Ashley Coutinho, he says central banks across the globe are helping markets with financial stimulus.
Indian equities rose more than 26% in 2012. What is the market outlook for 2013?
Indian equities fared well during the latter part of 2012 because of renewed government vigour on policy initiatives, following fears of sovereign downgrade and global liquidity easing on account of QE3 and Fed announcement to check interest rates till 2014-15. Looking ahead, we believe the government will maintain its pace of policy action given the downgrade fear. This augurs well for the economy and the bourses. With better expectations for global GDP growth in 2013 and benign global inflation, liquidity will remain easy and will eventually find its way into assets. In January itself, Indian markets have witnessed net FII inflows to the tune of R8,700 crore. Factors like peaking of the interest rate cycle and expectations of rate cuts spell good news for equities. In calendar year 2013, we expect domestic interest rates to soften by at least 150 bps. The deferment of GAAR by two years will further boost business confidence in India. The reasonable valuations and waning earnings downgrade cycle gainfully support a possible 10-15% upside on the Nifty in 2013.
What are the key positives and negatives for the market this year?
On the positive front, we have seen good portfolio flows into India. Policy measures have been upbeat, especially those that would help curtail fiscal deficit. Steps taken by the government on the reform front have been positive. Deferment of GAAR and interest rate cuts has also had a positive effect. On the flip side, fiscal deficit continues to be alarming notwithstanding the recent government measures. Welfare spending, if announced during the coming Union budget, and decelerating GDP growth could add to the woes. The current account deficit is another concern given suppressed exports and stubborn imports despite depreciated rupee levels.
There are indications of a rate cut later this month. How do see the movement in the interest rate cycle this year?
The interest rate cycle appears to have peaked out. Close on the heels of two CRR cuts, we expect a 25 bps repo cut in RBI’s