Kishor P. Ostwal, CMD, CNI Research, an equities research provider, alludes to ‘political money' in the system, given the major FII outflow from India and now inflow, coupled with the rupee depreciation.
In August, overseas investors pumped in close to Rs 11,000 crore in the Indian stock market, the highest in six months. The BSE-listed CNI Research specialises in small- and mid-caps.
Ostwal spoke to
If policy paralysis continues, what is your take on corporate debt? Do you see corporate debt default rates getting worse?
Yes, the impact is clearly visible. Corporate India is struggling with high cost debt.
There is a crisis of funds at low cost. In fact, though corporates switched to FCCB in the last couple of years, they have lost heavily taking a hit on their balance sheet due to huge depreciation of the rupee. This was unexpected.
I do not think we can see any improvement in the policy regime before 2014. Of late, it is noticed that the losses on account of foreign exchange for Corporate India has exceeded Rs 8,000 crore in one quarter which is very large.
Can you give us a take on FII investments so far? Does the trend appear to have slowed down?
According to the numbers disclosed by SEBI with regard to FII inflow, so far, we have seen close to Rs 11,000 crore inflow. This does not appear to be slowing down.
Considering the timing of the major outflow from India and now the inflow, coupled with the rupee depreciation, this gives rise to the fact that it could be political money. It smells like that.
Also, since the P-Note unwinding and fresh positions, etc, is not known, it is very difficult to comment on FII money. So far, the flows have been coming in only in a few index-based large-cap stocks. Rest of the packs are trailing and many stocks are testing their 52-week low every day. For example — RCom.
In the past, we had seen FII investments in all the sectors and stocks including few mid-caps. This trend is not seen now. If one were to track the rupee, as long as it is around 55-56 levels, the flow will continue to come in. Once it rise to 52-50 levels, we can safely presume that inflow will come to a halt.
CNI InfoXchange had tied up with SBI to distribute its financial products such as mutual funds, debt schemes and bonds. Can you give us a take on the current status?
Public confidence is very low. The saving rate is dropping very fast. Investors prefer bank deposits and gold as better options than mutual funds, debt schemes and bonds. We need immediate steps to address investors concerns to improve the sentiment.
What can be done is to bring physical settlement, which could open the doors to a large section of high networth individuals (HNI) to the arbitrage business. Equity lending will take off. This will create a right platform for investors of A group shares.
Shares will be recognised as an asset class instead of a piece of paper and volatility is bound to go down.
Gold is the fastest appreciating asset today and traders in the NCDEX can take delivery of gold if prices fall on the settlement day, unlike the share market.
Where do you see the markets heading in the short-term?
The movement of market is heavily dependant on positions of longs and shorts rather than fundamentals on the short-term. The factors governing the stock markets and the economy have not changed in August, yet the share market has travelled all the way from 5,050 to 5,460 before correcting.
This is purely because the operators enjoy the freedom of moving markets in either direction, in the absence of physical settlement.
There is no level playing field provided to retail investors, HNI and other investors to counter the operations of few large operators. Hence, prices move north or south by 30 to 50 per cent in the settlement, which is out of surveillance in F&O scrips.
In the B group, however, even a 10 per cent rise attracts immediate surveillance. Yet the market has broken the key support of 5,300. We may see Nifty testing 5600 in September.
I do not see any change in the RBI stance, with regards to inflation and improvement in the economy with regards to policy paralysis. Hence, there are no major drivers in the short run.
However, if QE3 is coming in the US (Fed's bond buying programme) and the much-talked about stimulus by China comes through, then there could be a big surge in global liquidity which can travel to emerging markets, especially India.