There’s Enough Money Out There for Indian Markets

Though negative news flow has muted the India growth story, the country has enough potential to attract investors, says Chandresh Nigam of Axis Mutual Fund

The extent of India growth story has subsided over the past few years, feels Chandresh Nigam, head of investments at Axis Mutual Fund, feels. He, however, is optimistic that India has the potential to grow at 7% —if not at a towering 9-9.5%. "Even in these tough times, we're seeing consumption demand holding up above 6%. Now, that's a reasonable number. Foreign investors are waiting to see some spark, some policy action. There's enough money out there for Indian markets," he said in an interview to Shailesh Menon and Nihar Gokhale. Edited excerpts: 

Foreign investors have redeemed over $617 million dollars from offshore India funds after the S&P re-rating in April. Your comments? 
I think there are certainly some India-specific factors which we all know about. There has been some negative news flow regarding our growth for over a year now and that has caused some damage. But the bigger issue is that emerging market as a whole have seen outflows during the past few months. From that perspective, a significant part of the outflows from emerging markets is due to risk-off scenario prevailing in world markets. Outflows from India-focussed funds are not about S&P downgrade alone. Informed investors know risk-points well. Their view about India has not been that good for over a year now. But, at no point, foreign investors will desert India. 
But what if S&P downgrades India to junk status when it reviews ratings down the year? 
It's tough to deduce how markets will react to a particular event. But if the general global sentiment at that point of time is weak, this will be another reason for investors to sell emerging markets. Markets, in the short-term, run on sentiments. The impact of a ratings downgrade will be heavy if the overall sentiment is weak. However, if things are going reasonably well and some of our problems have got resolved, the market may even take a ratings downgrade in its stride. 
What are your major concerns as an investor? 
We feel this is a good time to be investing in the market. With our GDP print already hitting below six, which is quite negative, we expect some policy action. We're already seeing some response from the government post the lower GDP growth announcement. Secondly, we're quite positive on the oil-pricing front. That's a significant relief for Indian markets especially because oil has a bearing on fiscal deficit, current account deficit and inflation. From a domestic perspective, we expect things to be better off from hereon. We're building up towards a good cyclical bottom somewhere down the line. The risk is largely from global markets. The market may hit the panic button in the event of some unfortunate or negative development in Europe. 
What's your view on oil? 
Oil holds the key for sure. We do expect oil prices to stabilise below $100. That will solve a lot of our problems like currency weakening, current account deficit and inflation. The two big positives for Indian market are — lower oil prices and a lower-than-6% GDP growth, which will spur some policy action. I don't think the government has a choice now. 
Do you expect RBI to cut rates at its policy meeting next week? 
RBI has clearly showed it has moved on from inflation-control mode to promoting growth. With this kind of GDP number, there's a 50-50 chance, RBI may cut rates when it meets next week. The market is expecting a 25-bps cut. I think that's quite possible. If we are targeting an 8% GDP growth, we must tap down interest rates. 
The rupee has added up to the existing list of woes. 
In terms of outlook, we've already seen a sharp depreciation. At 56 to a dollar, we should expect some appreciation in values. Lower oil prices could be a big contributor in bringing rupee to equilibrium. Exporters like pharma companies and IT firms have benefitted from a weak rupee. In fact, some of these companies could log higher earnings in the upcoming quarters because of the rupee weakening. 
What's your outlook for markets? 
We expect the market to be in range this year as we do not see a huge growth this year. Our call is that it may stay between 4600 and 5600 levels on the Nifty. But markets may look up once rates start moving down and with some policy action and global stability. The market will move in line with corporate profit growth rate. Valuations are cheap now. We have forecast an EPS of . 1,250 for Sensex this year. 
What investment strategy are you adopting in these times? 
Investing in pharma and FMCG is no longer defensive for the kind of multiples they command. If you go by a normal definition, defensives are businesses which see lower volatility in their earnings profile, so there is a premium which we are willing to pay for predictability. If there is large valuation gap, the fund manager will move to opportunities elsewhere. We've already done this a bit. We are now trying to find interest-rate sensitives that can benefit in the next 8-12 months. We are positive on select banking stocks. IT & pharma look good. We are still not very sure about metal companies. Our contrarian bet for the long-term would be infrastructure. Some of the existing infra players may not be able to benefit, but there will be newer opportunities for some players. 
shailesh.menon@timesgroup.com 

CHANDRESH NIGAM 
Head of Investments Axis Mutual Fund