Wednesday, December 21, 2011

Q&A: Sandesh Kirkire, Kotak Mutual Fund

Kotak Mutual Fund chief executive Sandesh Kirkire tells Priya Kansara Pandya why the rupee’s depreciation could continue and shares his outlook for the Indian equity markets. Edited excerpts:

The rupee has been depreciating against the dollar. How sustainable is this and why?
It may remain at 52–55 levels against the dollar and I believe we are in for a reasonably long period of depreciating rupee environment, till portfolio flows come back or capital foreign direct investment starts improving.

The dollar is in shortage, as there has been a flow of capital into dollars (despite the US getting downgraded) due to the euro problem. Second, I do not believe oil prices will come down. In spite of low growth, oil prices have not budged. However, I do not believe the $130-140 range movement for crude oil prices witnessed in 2008 is coming back. Third, $30 billion of India’s current account deficit of $55-60 billion is on account of gold imports. Global investors are buying gold due to fear and there is also supply constraint. All these are putting pressure on our current account deficit and currency.

Do you think a seven per cent inflation by 2011-12-end is achievable?
On a point-to-point basis, inflation will come down. But it will rise in 2012-13. As long as the currency is under pressure, inflation will not be something which can be ignored.

Is a seven per cent gross domestic product growth also achievable?
Our linkages with international markets are strong and growth cooling there will obviously have an impact on India. However, domestic consumption has not collapsed and it’s far superior than in 2008. I believe 6.5-7 per cent growth is sustainable in the next few years. For us to move back to an over eight per cent level, it’s imperative to have reforms and the global situation improves.

Do you think the Sensex can slip to 12,000 or even go below that?
The markets are not going to drop drastically like they did during the Lehman event, a financial accident. Secondly, India and China are the only two countries growing at over five per cent. Global investors cannot ignore India. Reforms are necessary to bring them back.

Thirdly, I bel-ieve 2012 should be better for equity because significant corrections have happened and we are close to historical lows. The current 15,000-16,000 levels are significantly cheaper than the 16,000 seen in 2007. If the markets drop 10-15 per cent from here, the valuation would be similar to the 8,000 levels seen during the Lehman event.

Do you expect more pressure on sales in the third quarter than expected?
Till the September quarter, sales growth had been upwards of 16.5-17 per cent, including inflation. The real growth could be 8-10 per cent. I believe this is possible for the whole financial year.
However, the domestic investment space, dependent on the government’s support and interest rates, has not done well.
There is not sufficient policy initiative. New investments are just not happening. I do not see a continuation of business flows in the infrastructure sector. Thus, we have been underweight on the invest-ment/infrastructure related sector (high beta). Valuation-wise, the infrastructure sector continues to be cheap and it’s getting cheaper by the day because of lack of visibility. However, since we do not see interest rates going up, we are looking at the sector more closely. We want to see order inflow coming in. Both will lead to the sector’s re-rating, which will be phenomenal.


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