‘Fiscal indiscipline could derail markets’

Manisha Jha Mumbai | Updated on June 07, 2013

Gautam Trivedi

Gautam Trivedi, MD and Head of Equities — India, Religare Capital Markets, answerd to Business Line on questions related to equity markets. Excerpts:

What are your views on the current state of the markets?

If you look at the market as a whole nothing has significantly changed on the fundamental side in spite of the fund flows. So, its clearly running on foreign funds. If FII flows slow down or dry up, the market will come off. Unfortunately domestically there is no demand in terms of putting fresh money to work in the market. Domestic mutual funds and insurance company’s redemptions have been continuing unabated.

There is no improvement in terms of fresh inflows from the retail investor whether directly in the equities market or through mutual funds. They continue to invest in either fixed income products, gold or real estate as they don’t have confidence in the market.

So what is driving FII flows in India?

India is benefiting from the global liquidity situation. It has been the second highest recipient of FII money year to date in Asia as on May 30. India is up at $14.5 billion, up 70 per cent. It still stands out among BRIC nations. Low commodity prices are a big positive for India and is also the reason foreign investors are buying into India despite issues on the domestic front.

What is the key reason retail is lacking confidence in the market?

It is probably earnings growth that they don’t see coming through. Politics also plays a major role and if they see an improvement in the political front post elections, they will come back to the market and we will see a massive rally.

What is your Sensex target and what could derail the target?

We have a year end target of 22,000 by end of this fiscal. We are basing it on GDP growth target of 4.9 per cent for FY13 getting improved to 5.8 per cent and on the fact that FII flows are expected to continue and help the market rally unless there is a global shock.

Fiscal indiscipline could potentially derail it. We are staring at a huge food security bill of beyond one lakh crore already. Infrastructure is a major issue as it is a key growth area for the country affecting everything including employment.

We have never seen a situation where L&T has gone ahead and de-recognised Rs 17,000 crore worth of orders. .

The outcome of upcoming State elections in 5 states could also impact the markets.

What would you rate as two biggest risks to market right now?

If there is indeed a winding down of quantitative easing by the US, it could prove to be a risk for the market as it has not been priced in by the market. The other serious risk could be a sovereign downgrade. What are the concerns on the macro fundamental front?

Will the government be able to achieve its fiscal disinvestment target is going to be a key issue. We have about Rs 15,000-20,000 crore of OFS and IPP scheduled over the next few weeks. A lot is going to depend on the success of these deals in the near-term assuming they get prices sensible, they could suck up a lot of liquidity from the market and cap the upside.

Given the latest data of a slide in WPI, what are your expectations from RBI’s monetary policy on June 17?

We are expecting a rate cut of another 25 bps in June and a total rate cut of 75 bps by FY14.

Published on June 07, 2013

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