The worst may soon be over for Indian equities, believes Prashant Sharma, CIO, Max New York Life Insurance. Sharma is optimistic the market will probably bottom out in the next few months and rally with the surge in global liquidity. In an interview with FE?s Ashley Coutinho, Sharma says he is hopeful that Indian policymakers will get their act together in the next six months. Excerpts:
Indian equities have stayed volatile in the past few months. Where do you see the market headed in the coming months?
The rally we saw in the early part of the year was not sustainable because it was due to the liquidity easing in the Western world. There was nothing that had significantly changed back home to justify the rally. In the last few months, the market has corrected significantly and the valuations have become reasonable. At this point, the market looks fairly priced because almost all the negatives have been factored in. So I don?t expect a significant downside for the market. The market will probably bottom out in the next three months. We could see a decent rally from those levels.
Is the bottom imminent?
If you take a big picture view, the Indian market has not given any returns in the last five years. We are lower than what we were in 2007 despite the growth that has happened. We could also see another round of liquidity infusion globally during some point in the year. The market will form a bottom and start rallying much before the country?s economic environment actually starts improving. Markets typically price in an improvement six to nine months before the actual economic climate improves.
How grave is the threat from Europe?
I don?t think a crisis in the euro zone will derail the market totally. Markets will correct if there is negative newsflow but the pain will mostly be short-lived as market participants have been expecting an escalation in crisis in the euro zone for some time now.
What are the key positives for Indian market?
Interest rates have peaked out, gold imports have reduced and global crude oil prices have corrected quite a bit. The rupee has seen a 20% erosion this year and is likely to slip no further than 57-58 levels. I expect the rupee to settle at the 50-52 levels in the next six to nine months, which will become the new normal for our currency.
What is your assessment of the fourth quarter results?
The overall results have been lacklustre, pretty much on expected lines. There are no significant surprises, either positive or negative. It has been that way for the last few quarters and will continue to stay that way for a few more quarters. There will be earnings downgrades but the markets will take it in their stride.
What is the way out?
We need to see some action on the policy front. Hopefully, the policy makers will get their act together in the next six months. Even if no big bang reforms are executed, small remedial measures ought to get underway. Also, I expect the RBI to cut rates because growth has slowed down and global crude oil priceshave corrected significantly. We expect another 50-100 bps rate cut over the next six-nine months.
Which are the sectors that you are betting on?
At a broader level, the markets have not gone anywhere in the last five years. We are seeing some value at the current levels, especially in beaten down stocks such as banking and infra, which have remained consistent underperformers for the last few quarters. Several stocks from the consumption and defensive packs have done exceedingly well during this period and we expect them to stop outperforming.