The mood among market participants may be pessimistic but Ramanathan K, CIO, ING Investment Management (India), sees positive returns for India equity market this year, led by rate cuts and policy reforms post elections. Ramanathan tells FE?s Ashley Coutinho that FII inflows are likely to be better than last year. However, he cautions that Europe remains a concern and a worsening crisis in the region could impact our market as well. Excerpts:
What is your outlook for the equity market in 2012?
I see positive returns for the market this year led by rate cuts and expectation of some policy reforms post elections. The two factors that impacted sentiments last year were the series of rate hikes by the RBI and the government?s inaction on the policy front. The RBI has clearly stopped its cycle of monetary tightening but the bank will not be in a hurry to cut interest rates until inflation comes off to near 6-6.5% levels. We expect rate cuts of 100-150 bps this year, possibly beginning April with a token 25 bps cut. Also, the market expects some positive surprises from the government on the policy front after the elections in March.
How do you see earnings in coming quarters?
I expect earnings to be in line with expectations for most of the sectors. There will be negative surprises in capital goods. Banks may surprise on the positive side as banking has significantly underperformed the market and a lot of negativity is already built in. The NPAs that are being talked about won?t materialise this quarter. I expect to see decent numbers, especially from private sector players. IT will perform well but there is no scope for positive surprises. The gains from rupee depreciation are already factored in. The IT budgets are expected to be flat but pricing will remain stable.
What are your expectations from the Union Budget?
The government would look to raise revenues by rejigging excise duty rates. The divestment programme would also feature in the budget. The budgeting of subsidies on food, fertiliser and petroleum, especially the increase in budgeted expenditure due to the Food Security Bill, would be keenly watched. It is going to be a tough balancing act given the slippages in FY12 on fiscal deficit.
Which are the sectors you expect will do well this year?
The sectors which I expect to do well will be the sectors which had got impacted the most last year ? banking, capital goods and metals. Valuations in these sectors are attractive if we assume that in the coming months the reforms process is kickstarted and interest rate cuts come about.
What are the global cues to watch out for?
Clearly, Europe is the problem child. The US is doing better than expected and the slowdown in China has already been factored in by the market. The market has built in two quarters of negative growth in Europe but concerns remain. If we see a full-blown crisis with disorderly sovereign default, we could see negative returns for our markets as well.
What is your outlook on FII inflows?
If the European crisis doesn?t break out, FII inflows are sure to be better than last year. FIIs are currently underweight India and underweight beta, which includes sectors such as banks and capital goods. Currently, the investment growth is faltering, the IIP and GDP numbers are below expectations. But this can change once the RBI starts cutting interest rates and the government gets its act together on the policy front.