Appreciation of rupee key for Indian markets to rally

A weakening rupee is a big negative for the market, says Anoop Bhaskar, the head of equity at UTI Mutual Fund. In an interview with Ashley Coutinho, he says investors should not try to time the market, but invest systematically over the next 12-18 months.

Your outlook on Indian equities...

Two weeks ago, the mood was very despondent. Now, things are looking up a bit. Growth expectations have been toned down and expectations for earnings growth have come down over the past three quarters. There is a belief that the government’s inaction on the policy front has hurt the economy. I believe the rupee depreciation is a very big negative for the market. The rupee has to be stable with an upward bias for the markets to rally from here on. There are very few examples, if any, of an emerging market where the domestic currency kept weakening yet the market received robust overseas inflows. The rupee will appreciate over the next few months if global crude oil prices continue to fall, the global situation doesn’t deteriorate, RBI takes some action to cut interest rates and government takes decisions on issues that really need fixing. This appreciation (of the rupee) can then become the foundation on which our markets rally.

What are some of the key positives for the market?

Market participants are trying to see things in a positive light. In India, a GDP growth rate of below 6% will be fairly unacceptable to the political class and they will make all efforts to ensure we stay above that level. With the GDP numbers so low, the RBI will be forced to cut interest rates. The rupee is showing some signs of stability and is not headed to the 58-59 levels it was assumed to be headed to earlier. Global crude oil prices have come off and there are hopes of something positive happening on the policy front.

Your advice to retail investors...

Investors should not try to play the market at different levels; enter every time the Nifty touches, say, 4,700 and exit when the market reaches 5,200 or 5,300 levels. It is better to take a certain view and buy quality companies that will do well over a cycle. Investors should not feel that they have missed out on a rally just because they failed to enter at the 4,700 levels or stay away just because they find the market expensive at the current levels. Rather than trying to time the top and bottom, they ought to invest systematically over the next 12-18 months. We will see significant volatility during this period and it will be very difficult to time each of the rallies and falls.

Which sectors do you like?

We are adopting a cautious stance. Several of our funds are equal weight on banking, a sector with the highest beta. A cut in interest rates will benefit banks. We are also equal weight or overweight on defensives like pharmaceuticals and consumer staples. We want to play selectively on industrials or capital goods. Our view on infrastructure is they are stressed assets where the element of dilution is difficult to calculate. If a company’s debt to market cap is 3.5 times, it cannot repay debt from its operations and raise equity to pay off the debt. It can only sell assets. So, we would rather look at these companies when the asset sales start to happen.

What is the outlook on FII money?

Surprisingly, money hasn’t flown out of India despite the spate of bad news. But the inflows are difficult to predict. The quantitative easing, as and when it happens, will change the mood and perception on risk-on assets rather than actually bringing in any tangible inflows into emerging markets like India.

How will the global headwinds impact Indian equities?

Last year, there were 11 European summits and the world markets rallied for 2-4 days after these summits. The same will be the case in 2012. However, you can’t build a portfolio based on events for which the probability varies from 30% to 60%. The only thing a fund manager can do is adopt a more cautionary stance.

Source: http://www.financialexpress.com/news/appreciation-of-rupee-key-for-indian-markets-to-rally/961208/0