Bloomberg TV India spoke to Sanjeev Prasad, Senior Executive Director & Co-Head, Kotak Institutional Equities, on the stock market situation.
Well, the mood is clearly very negative. A lot of it is driven by global factors and I would attribute 70-80 per cent of the gloom to global events. There are a number of global issues that are creating a lot of uncertainty. The first issue is that the policy actions by central banks are becoming more and more difficult to fathom. And, how efficacious are the policies of the central banks in terms of QE (quantitative easing) and lower interest rates in reviving the economies?
Clearly, monetary policies alone cannot help the global economy. One of the big challenges I see is that the political leadership and the executive and legislative arms of the governments everywhere seem to have abdicated the responsibility of economic management to the central banks. None of the countries want to implement structural reforms. The central banks have a few tools only. They will only keep on reducing interest rates and do QEs up to a point. And, honestly, I don’t think this is really working any more as far as the global economy is concerned. We require structural reforms and that is clearly not happening in the current environment.
The second big issue is China: as to how it is managing the transition from a closed economy to a more open economy in terms of interest rates, currency and stock markets. There is a lot of nervousness around China’s ability to manage the transitions.
The last point is on the domestic side. The recent development in the banking industry with respect to NPL (non-performing loan) recognition has spooked the markets significantly. The only silver lining I see is that if I look at stocks now, many of them have come to reasonably inexpensive levels. Of course, one still doesn’t have a full grip on future earning numbers given the general uncertainty. We could still see some downgrades in some of the sectors and stocks. However, valuations in general are starting to look a lot more reasonable. In fact, in some cases valuations have become quite attractive.
However, given the mood of the market, I don’t think anybody has the confidence and in most cases even the capability to invest as money continues to flow out of emerging market funds.