Equity market is unlikely to move up till June of this year, says Anoop Bhaskar, head equities at UTI MF, in a freewheeling interview with Chirag Madia. However, in the second half he expects a rerating of equities if crude comes below $ 90 per barrel and inflation eases.
In the last few months, Indian equity markets have remained volatile. How do you think it will shape up in the months to come.
I am worried as there are some problems on the global front with crude oil trading in the range of $100 per barrel and problems persisting in the Middle East. It looks very unlikely that we will have some upwards movement in the first half of the year till June. However, if crude comes below $90 per barrel, then we will be in a good position as inflation will ease, while interest rates would peak out. Post July, we might even see a re-rating of our equity markets.
In terms of corporate earnings, not too many brokerages are on the path of upgrades. But I think that by September we might witness upgrades in the earnings. From then on, chances of markets going down will be very limited.
Next two quarters of corporate earnings will be weak ….
It could be weak. Right now, we are witnessing a repeat of 2008 where we had headwinds of 2007 with very strong sales growth along with very high input costs. This is for instance noticeable in case of Tata Motors, Maruti or Hero Honda where there is no slackening of demand.
We believe that while consumption story is strong, margins are getting affected with higher raw material costs and higher interest rates. This is leading to a fall in the margins. I think earnings growth will remain affected and that?s where the real concern is.
What do you suggest retail investors ….
We are advising investors not to jump the gun and invest in equities. If investors are earning 10.5-11% per annum on a three-month fixed maturity plan (FMP), which is 2-3% in terms of absolute returns, I don?t think anyone can assure 4% absolute return in equities over the same period. So, it is our duty to inform investors that this is a time when you should not be adding to equities. It make sense for investors to invest in short-term fixed maturity plan at this point in time and enter the equity market in June-July.
Will foreign funds continue to net sell in equity markets?
There are broader issues of higher inflation affecting overall corporate earnings growth for investors. When GDP growth rates are downgraded, FIIs? money tends to move out of the country and vice-versa.
Currently, emerging markets have an allocation of 8.5-9% in MSCI global index; so, if that have to increase to 12-15%, then there would have to be a shift in allocation from developed markets to emerging markets. Lot will depend on crude prices.