The year 2012 that drew a record $20 billion investment by the FIIs in Indian capital markets does not appear to be a flash in the pan. If the optimism of some of the market experts turn out to be correct, 2013 could see an encore as well.
This is despite the fact that some of the key issues such as inflation and high interest rates continuing to dog the people. There is also the question of how long the liquidity-driven rally will last when fundamentals of the economy still pose a spot of bother.
In an interview to
FIIs have poured in over $22 billion in the current year to-date. India's growth has been slowing, but it still is growing at the second fastest pace in the world. The debt / GDP of India is at a far more comfortable level compared to US, Europe or Japan. Their excess liquidity will be diverted to growth-oriented countries like India amongst others. So we will continue to see such influx even in the next calendar (year).
How will US fiscal cliff (crisis), if not resolved before the year end, would affect Indian markets?
The US govt needs to curb its deficit by raising taxes which could put the economy into recession. But if it continues to print currency to bridge the gap, then the debt ceiling will be breached and rating of US will be once again at risk. On both counts, the US economy would suffer. India could get impacted in the short-term as again there could be global flight to safety towards the dollar and INR could depreciate further. This could be the short-term negative impact in the next quarter or so. However, subsequently, the corporate earnings and reform process will govern the market direction.
What are the compelling reasons for the retail investors giving a pass to the market recovery in 2012?
The behaviour of retail investor is governed by psychological factors like ‘anchoring’ or ‘fear of loss’ that restricts switching from non-performer stocks to quality stocks. Given the herd mentality of investing in 2008, the retail investor is still saddled with poor quality expensive stocks of the bull run. Though Sensex or CNX mid-cap may be closer to all-time high, the BSE small cap index is still close to 40 per cent away from its all-time high. Sadly, the retail investor has a big chunk of his portfolio in such stocks, so obviously he is not much enthused about the current stock market rally and has given 2012 a pass.
How do you see the permission for FDI in multi-brand retail driving economic growth, particularly as it comes with riders?
FDI in retail will have a long-term impact on economic growth as competition brings in efficiency and benefits the consumer in the long term. The entry of Maruti, while leading to the disappearance of inefficient auto players, benefited the consumers. I would like to draw a similar analogy to the FDI in retail which will have a long term impact on the economy.
Which are the sectors and stocks in those sectors that you expect to perform better in 2013?
The segments and sectors which had underperformed for most of 2012 due to hibernation of the government will outperform in the next year. Another factor is the reversal of the interest cycle as indicated by the RBI Governor. While global concerns will have an impact given the current risk reward aspect, a few stocks that we like are Shriram Transport, NTPC, Coal India, Thermax, Infosys, Bharti, Reliance Industries, Tata Motors and ICICI Bank.
What should be done by the Centre to revive investor confidence?
The Centre can meet its divestment target and can revive investor confidence by pricing good quality PSUs at a discount to the market price. If retail investors make some quick bucks by buying FPOs at a steep discount, that would create liquidity and revive investor confidence albeit for the short term.
How long should the government expect the LIC to bail out PSU FPOs?
I would like to give this question a pass.
Do you think companies should go for rights/bonus issues rather than FPOs priced close to market price to meet SEBI norm of 25 per cent public shareholding for market to revive?
Many MNC stocks with more than 75 per cent promoter stake had witnessed significant uptick on expectations of being delisted ahead of the June 2013 deadline. In case of no de-listing, the run up in stock price will not be justified by the underlying fundamentals. In many cases where companies opted to directly sell excess promoter’s holdings in the open market the stock prices have corrected significantly.
While bonus issue cannot solve anything as it is on pro-rata basis, rights issue will not be fancied by minority shareholders and so the dilemma remains. Ideally, a block transfer at a discount is a viable option and the run up in their market price has made risk return unfavourable from hereon.