While there is hype about the India growth story after Prime Minister Narendra Modi’s US visit and RBI’s surprise 50 bps rate cut, there is still apprehension on the action on the ground. Bloomberg TV India spoke to Harsha Upadhyaya, Head of Equities at Kotak Mutual Fund, to get an insight on what could drive growth and improve India Inc earnings.

There has been so much hype on growth in India post the RBI policy and the Prime Minister’s recent visit to the US. But do you feel on ground sentiment has changed India to a little cautious out here?

On ground, I think the sentiment is still cautious but definitely sharper than anticipated interest rate cut by the RBI is definitely a good boon. We believe that the monetary transmission is going to happen very swiftly from here on as the RBI has already cut repo rates by about 125 basis points in the current calendar year. We believe the transmission is likely to happen very swiftly from here on, which is good for all the consumption-related sectors. So, currently, I think this is going to revive consumption, especially urban consumption, in a very short term and eventually, which could lead to investment capex improving in the economy.

So you are not expecting too much of earnings this year? How do you see the capex and at the same time how earnings are likely to play out?

This quarter once again is likely to be subdued just like what we witnessed in June quarter given that market is likely to be very range bound in very short term. But from December quarter onwards, we were expecting some kind of improvement, which should sustain in the next financial year as well. Initially, it would come from the low base from last year but I think transmission of interest rates cut will also help as we move forward plus there will be some pick up in consumption demand across the board. So all these things should help in earnings growth trajectory to improve from December quarter onwards.

Given growth concerns globally and the RBI Governor also shifting the focus to growth, how does all this really play out? Are we somewhat jumping the gun? Do you think we will be able to decouple ourselves from some of the global worries? how India is really stacked up when we talk about this nervous global environment?

Sure, we all know that the global growth is a matter of concern. In a sluggish global growth scenario, India continues to be one of the relatively brightest spot I would say.

Having said that even we will face some pressure on our exports growth, if we look at all other emerging markets currency, they all have devalued much more than Indian currency. So in that context they have become more competitive in the global exports market.

So our growth would be more dependent on domestic factors and domestic economy, rather than anything to get from the global growth. So to that extent while there has been some disappointment in terms of expected growth rates going forward mainly coming from global scenario. I think India is still in high growth regions for international investors.

What about the fund flows? This has been a big worry if you see the constant outflows last couple of weeks itself. What kind of selling can we see from emerging markets? What all your expectations are going forward when we talk about the last quarter itself in terms of how fund flows are likely to play out?

Most of the selling that we have witnessed over the past few weeks has been largely due to the global factors rather than India specific reasons. If we see at the August month, we have seen about $2.5 billion of FII selling. As we ended September, I think this number will be less than $1 billion. So clearly selling has abated. Nevertheless it continues.

There are passive investors who are pulling out money from ETFs, which are putting some pressure on our markets as well.

That will continue as long as the global situation doesn’t stabilise. But once there is stability in the currency market as well as other asset market we believe that India is going to be a better place for incremental flows for the investors which could happen over the next months or so.

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