The rollercoaster ride that the Indian markets are experiencing now may continue till stability returns to the currency and commodity markets, said Prateek Agrawal, Business Head & CIO of ASK Investment Managers. However, long-term investors should look at the current fall as an investment opportunity as valuations are cheap and Q3 results having sparked hopes of a recovery, excluding in corporate banks and commodities, he added. Excerpts:
How low can markets go from here?
Markets are not looking good as selling by FIIs can continue as oil investors are taking out money. Also, a number of emerging markets are facing stress both in terms of economic outlook and currency volatility.
Commodity businesses and corporate banks, which have sizeable weightage in the benchmark indices, are experiencing difficult times and the stock market is reflecting that.
Pressure on the Chinese currency has also increased, forcing markets to react to the rupee as well. Hence, while valuations are now cheap, for global investors to look at India, we would need stability in the currency markets. Hopefully the budget should provide stability.
What should an investor do — buy, sell and then come back?
Since valuations are cheaper than long-period averages, this is a good time for domestic investors to invest in the market for gains over the long term. However, the uncertainties are real. An investor should take an asset allocation decision and invest into the market only gradually over a period of time.
How do you find Q3 results so far?
In this quarter, most companies, excluding commodities and corporate banks, delivered strong results. There is evidence of reasonable margin increase while topline growth is still eluding Corporate India. So, recovery has commenced. It will be more widespread as we go forward when the inflation indices move into the positive territory and businesses do not have to cater to losses on inventory and forex.
Domestic fund flows have slowed down. Do you see this continuing?
The lower flows in the month of December and January was primarily on account of fewer working days during these months. Our sense is that February has so far been strong as regards flows into funds. We ourselves continue to gain market share.
What sectors have you churned in the last six months? Why?
We have reduced our exposure to the capex theme. Commodity businesses have been impacted negatively and they are otherwise a big driver of capex. Since demand from this source is no longer anticipated, this is a negative. Banks are having to recognise a lot of NPAs and that again reduces their ability to take on fresh exposure, which again is not positive for capital intensive businesses.
Do you think global events are having greater bearing than domestic events?
Global events are having a bearing in terms of flows. On overall macro, India looks good. However, parts of our economy, particularly corporate banks and commodity businesses, also have issues.
Also, while our economy is strong, it is not strong enough for the currency to retain its level in case the Chinese also let their currency depreciate.