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
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