Countries like India will continue to get $15-20 b of FII inflows: SMC Investments

Even as global equity markets try to recover from Standard & Poor's blow of lowering the US's credit rating, they are still fearful whether the rally will sustain. Developments in the US and the European Union (EU) have raised fears of another downtrend in Indian markets, too, that are already grappling with a plethora of problems like rising interest rates, high commodity prices and stubbornly high inflationIn an interview to Business Line , Mr D.K. Aggarwal, Chairman and Managing Director, SMC Investments and Advisors Ltd, shares his thoughts on how these events will impact Indian capital markets.

Excerpts:

How will uncertainty in Europe and a slow recovery in the US affect Indian markets during the year?

As of now in the domestic markets there are no major signs of slowdown in the economy except in a few (segments) like automobile, cement, etc. However it is perceived that in the case of a fall out in the Euro region or slowdown in the US, there is a risk that the domestic economic activity would be affected as there would be a slowdown in the global trade.

How much will downgrading US hit funds flow into India?

The growth in the emerging countries like India is though moderating but it is expected to catch foreign investor's interest given the fact that it is still averaging 7-8 per cent. And if one looks at the developed nations they are still struggling for growth. There is fair chance that countries like India would continue to get $15-20 billion of investments in any given year given the foreign investors asset under management and allocations in the world markets.

Do you think Indian IT companies may have to revise earning ?

The lower confidence in the economy results in lower expenditure and we have seen in the past that Indian companies were affected on account of both volume growth as well as billing rates. The Euro region crisis may further affect the Indian IT companies as the region accounts for second-highest revenues. Major revenue source is BFSI (banking, financial services and insurance) and it is expected to get hit in both Euro region and US as there are expectations of slowdown.

In the recent result season we saw some sort of confidence about business conditions coming back to the Indian IT companies but the recent events suggest that there may be a case of slowdown. As of now I think it would be prudent to wait some more time before taking any opinion.

Do you see any significant fall in commodity prices?

The recent weakness in the commodity prices globally is expected to alleviate the inflation problem. By and large, much depends on the crude prices. If any significant cut comes then it would really help in controlling inflation. The relevance of agricultural commodities is now largely limited to the food inflation and not to a large extent to non-core inflation, i.e., on manufacturing side.

Much has been made of policy inaction like on foreign direct investment (FDI) in retail, reforms in sectors like insurance, etc., but do they have any impact on fundamentals of the economy?

Retail and insurance sectors are small part of the domestic economy. Any increase in FDI in the fundamental aspects is more long-term in nature and usually takes a decade or two to start showing its impact.

Are we over-selling the infrastructure-growth story? Why has the sector failed to deliver?

Lack of major policy initiatives or one can say the delay in allocation of infrastructure projects of government projects together with large increase in material cost and interest cost has resulted into problems for the infrastructures sector.

The performance of Indian mutual-fund industry in the past two years has been unimpressive. Do you think that some of the funds may exit or be absorbed by others?

The performance of mutual-fund industry depends on the performance of equity and debt markets.

In the last two years it is seen that in the equity markets only few sectors performed really well like banks, IT, consumer durable and FMCG. So having said that such themes were quite rewarding and sectoral themes did perform well in the last two years.

Though global markets have recovered in the past two days, will this rally sustain?

After the downgrade of US credit rating what we saw was panic reaction and turbulence in the financial markets.

However after the huge sell off, we have seen good rally in the markets but whether this rally would sustain its momentum is a question mark and would be more guided by the cues coming from US and European policy makers.

However the fear of global slowdown particularly of US and China and the risk of sovereign debt default in Euro is expected to keep the sentiments down for the time being.

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