The stock markets on Monday opened the week — and the month — on a positive note. After a scare last week that Dubai may default on its debt that resulted in a two-day correction, the markets bounced back on Monday.
The National Stock Exchange’s 50-share Nifty index rose 90 points to settle above the psychological 5,000 mark, clearly helped by strong growth in India’s quarterly GDP, which turned in at 7.9%.
In an interview with CNBC-TV18, Rajiv Anand, CEO and MD, Axis Asset Management Co, discusses his view on the market and how it may pan out ahead.
Below is a verbatim transcript of Rajiv Anand’s exclusive interview on CNBC-TV18.
The National Stock Exchange’s 50-share Nifty index rose 90 points to settle above the psychological 5,000 mark, clearly helped by strong growth in India’s quarterly GDP, which turned in at 7.9%.
In an interview with CNBC-TV18, Rajiv Anand, CEO and MD, Axis Asset Management Co, discusses his view on the market and how it may pan out ahead.Below is a verbatim transcript of Rajiv Anand’s exclusive interview on CNBC-TV18.
Q: You have seen strong GDP numbers. They are following what the stock markets have done from retrospective effect. Are you convinced that the uptrend continues to remain intact and how would you be positioned on the markets right now?
A: I think the numbers were a positive surprise but just a hint of caution there. I think a large part of that bounce has really come from government spending, which is up 26% odd so on the private consumption side while we seem to have broken a six quarter downward trajectory that still continues to be a little weak.
Going forward, I think, two things will kick in: the impact of the weak monsoon and private consumption weakness will continue going forward is really the moot point. But looking at these numbers, we do believe that the investment spend should look much better as there is growing confidence that this economy is going to do well going forward.
Q: You keep a careful eye on the bond market as well. What are they talking about in terms of how soon tightening might begin because that might be the obvious offshoot of such a fantastic GDP figure that tightening will happen sooner and faster?
A: I think the bets were on something in April but I think those bets have been pushed back a little bit. I think market expectation is that perhaps you could get a CRR hike sometime in December but remember that from an exit policy perspective most of the emergency stimulus is already out of the way. SLR is gone from 24% to 25%, emergency funding for NBFC in mutual fund is out of the way. Open market operations (OMOs) of the Reserve Bank of India supporting the government borrowing programme are out of the way.
The exit strategy has already started and the point clearly RBI is making is that the exit strategy is certainly going to be a non-disruptive one so therefore to that extent it will continuously be a balance between managing that inflation and the liquidity in the system.
At the same time, I think, the RBI is also not totally convinced that this growth trajectory will continue. Like the point that I just made about the fact that it seems to be hinged upon government spending and that is really not the kind of growth that you would see on a sustained basis, so it is going to be a balanced exit strategy and I certainly do believe that it will not be disruptive.
Q: What about the global impact, last week, the markets got fumbled because of the news from Dubai has that sort of been chucked off or would you still watch?
A: I think what the market is basically saying is that while there could be potentially be some sort of problem in Dubai, Abu Dhabi — which has got all the oil and more importantly all the money — will basically take care of Dubai. But I am not very sure that it is as simple as that.
It is a play that will unfold in the days or weeks to come and it will be interesting to see especially the larger international banks that have exposure in Dubai — how exactly that plays out and whether there is a technical or otherwise default in Dubai and then what exactly these banks will react.
I am not very sure that it is as simple as the markets are making it out to be while the number at USD 60 billion odd is the larger picture and the current number is about USD 3-4 billion. The problem is a little more complex than the markets are making it out currently.
Q: What about the banks? How do you approach that pocket now?
A: We are quite positive as far as banks are concerned. For two reasons, one is we do believe that gross domestic product (GDP) growth will continue to be strong in this country and I think if that is going to happen that growth needs to get funded and domestic banks or local banks need to play that active part so the asset side will continue to do well in an environment where savings are growing at a vicinity of 35%. Banks, with the distribution that they have, to be able to sell investment products etc are well positioned to manage the liability side as well as the fee-based income so net-net it is a great basket to be in and we are quite positive as far as banks and some of the non-banking financial company (NBFC) are concerned in this country.
Q: You have your pulse pretty much on the entire domestic fund flow picture. We have seen domestic institutions; insurance companies and mutual funds come from a pretty heavy profit booking and every time we go above that 5,000 mark. FIIs have come aggressively in the derivatives market what is your sense. Do you sense that there is enough economic data point right now possibly a much better earnings season, a much better second half to point towards some bit of buying even above these 5,000 levels or do you sense domestic institutions like yourself who can change till it remains slightly cautious at these levels?
A: I think the markets over the last three months if you look at the headline level are up 6-7% but the midcap index is up about 15-16%. So the story is not really at the index level but it has become a lot more stock-specific because clearly if you look at a valuation perspective, we are probably not cheap, probably at the higher end of fair value, so to speak. To that extent there is some element of churn that one is seeing and what one is also seeing is some element of profit taking by the retail investor out of mutual funds as the markets reach the 17,000 or thereabout so I think there is little bit of — I won’t call redemption pressure but — some money being taken off the table.
That is really what is leading to some element of profit taking. I think January to March is a big quarter as far as local insurance companies are concerned so I think we do believe that you will see a lot of money coming in from the insurance companies.
You are also seeing on the mutual fund we ourselves for example our first fund Axis Equity fund open for subscription at this point as do a couple of the other mutual funds. So I think going forward we certainly will see some amount of money coming into the domestic institutions.
Q: It is up in the air and we won’t hold you to it but what are the chances that by December — end of this calendar year — the market will have taken out its intermediate high? Do you sense that momentum is leaning that far?
A: As far as we are concerned, the macro picture looks good. The micro numbers look good and more importantly we have got liquidity on our side and domestic flows will continue to be good and I also believe that foreign inflows into the country will continue to be strong. So I think I won’t be surprised if we see a new high on this market in the next one year. I am really not sure where we will be in December but I think we will see a new high in the next one year.
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