The short-lived market euphoria over the Finance Minister's announcement of deferring General Anti Avoidance Rules (GARR) and the fact that it has not been withdrawn, and only put off, has created concern as to how the markets would behave.
In an interview to Business Line , Mr Dinesh Thakkar, Chairman & Managing Director, Angel Broking, Mumbai, sees light at the end of the equity tunnel and exudes optimism that the Sensex may rise to around 22,000 level by March next. Excerpts:
What are the immediate and long-term measures that you think the Government should take to bring back investors to the markets?
The Government needs to shed the growing perception of policy inertia. It must speed up mining and land acquisition Bills and welcome more FDI, especially in areas such as aviation, retail and insurance. Infrastructure is a perennial area where speeding up execution will do the economy a world of good.
How much levels market can go down further? Do you think only FII inflow would resurrect the markets?
FII inflows do play an important role. But look at what we need, just about $20-25 billion a year — that is a very small share of the global equity pie; so, I am confident that we will soon see better FII inflows as well, considering that compared to other countries, we have better fundamentals. Equities have been the best performing asset class over a longer timeframe, giving more than 15 per cent CAGR returns.
The Government has only put off GAAR not rolled it back. How do you expect the FIIs to behave till it becomes law next year? Do you expect dramatic change in FII perception from April 2013 regarding investing in India?
Long-term investment gains in equities, i.e., beyond one year are anyway not taxed in India; so, the long-only funds are not going to be affected by this. It is only some of the short-term inflows that may have to re-evaluate whether they will be impacted or not — the fine print on that is still awaited. Hence, it is not clear if some of the short-term inflows may get impacted eventually over the course of the coming year.
But, let us not forget that we are living in a competitive environment. I do not think our Government would do anything impractical that will materially slow down foreign fund inflows. However, whatever tax regimes emerge, they will hopefully be at par with other emerging countries.
How do you want the Indian investors to tailor their investment decisions during this year and post-GAAR enforcement?
Indian markets are once again trading cheap, after the sharp rally in January, which most people missed out. I think the markets will look to factors such as inflation, monsoons, crude prices and Government action for direction.
At present, the outlook for monsoon is positive, so that is one good thing. I would continue to look at the inflation index, because, if that throws up a positive surprise, then it could provide the necessary headroom for interest rates to come down more significantly, and lay the platform for GDP and earnings growth to pick up.
As the markets increasingly discount FY14 earnings as well, I think the valuations will look reasonably cheap. Simultaneously, reducing inflation and interest rates should improve the future outlook during the second half of FY13, as the outlook for FY14 earnings growth also increases.
I think a multiple of 15x to FY14 earnings will then be more appropriate, which translates into a Sensex target of around 22,000 by the end of March 2013.