Global markets are now shrouded by fears of a Fed rate hike in September. India’s below-expectation growth and market uncertainties add to the worries. Bloomberg TV India spoke to Sanjeev Prasad, Senior Executive Director & Co-Head, Kotak Institutional Equities, to get his views on markets and commodities.

It has been a volatile week. In one of your reports, you have said the market still does not really look cheap enough. Just run us through whether or not you feel we have arrived at a fair valuation given the recent corrections…

If we look at the broad market, it is straining at somewhere about fourteen-and-a-half times on the March 2017 basis. So yes, it has come off from the highs of fifteen-and-a-half. I would say it is an okay kind of valuation and also the stocks that you want to own — like private banks, automobiles, pharma, consumer, IT — other than private banks to some extent, we have not really seen much of a correction. So, I still think that valuation looks reasonable but back in the market it becomes quite okay if I look at the regulatory utilities, upstream modern gas companies, some of the private banks… But it has not come to the levels where you can make a pick by call. Yes, maybe the downside is limited but even upside is somewhat limited from the current levels.

How much do you believe is this due to the way the global situation has been panning out and how much do you believe is also here because of the fact that the local cues have somewhat dried up?

I think it is a combination of both the factors. The former factor of complete distillation went with emerging markets, which is probably a bigger player at this point in time. People look at emerging markets in general. They have been absolutely terrible performers on a five-year basis. The emerging market index has given returns of negative 20 per cent in US dollar terms, whereas the developed markets index is up 40 per cent.

If we look at a slightly more short-term period, the emerging markets index is down somewhere about 15-17 per cent. Many of the markets are down significantly. So as of now people are generally giving up on every market. They have not seen the kind of reforms being implemented in many of the markets. All these markets did well at the time when commodity prices were high and global liquidity was strong.

Now both are under a serious question mark, particularly on commodity prices. Structural weaknesses, which were there in this economy in terms of high fiscal deficit, high current account deficit, and so on, are all getting exposed. So the problem is with the emerging markets and India is unfortunately a part of it. As far as India is concerned, it is doing the collateral damage in a way.

Coming to the second fact which is the domestic issue, we have not seen much progress on reforms in the last two-three months… the Land Bill, GST Bill, etc. We have not seen any real progress in labour laws as well. This is disappointing. The second domestic issue is clearly that the earning downside continues. And, lastly there is a big question mark on the economic recovery process itself.

If we look at India’s macroeconomic parameters, three out of four variables are doing fine — the current account deficit/ BOP has improved tremendously. Inflation is coming under control and fiscal deficit is declining. But the growth issue is still a big one and until investment takes up in a big way, I doubt that the growth engine is coming back any time soon.

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