Stocks

‘Markets will weather US taper’

R Yegya Narayanan Coimbatore | Updated on March 08, 2018 Published on February 17, 2014

MOTILAL OSWAL CMD, Motilal Oswal Securities Ltd





As the global markets, particularly Asian markets, grapple with the impact of the roll back of the US stimulus, there is concern among investors here as to what would be its long-term effect on Indian markets.

This is understandable since the market, fed on a diet of easy liquidity, had rallied despite weak economic performance. A slew of factors, such as domestic political uncertainty, high inflation and interest rates, and concern over slowing Chinese economy have further added to investors’ apprehensions as to where the Indian equity market will head in the near-term.

In an interview to Business Line, Motilal Oswal, CMD, Motilal Oswal Financial Services, Mumbai, shares his perception on the markets and the issues that would have an impact on the direction it would take.

Excerpts:



The US taper has come to stay and it may gain pace in the coming months. How much do you expect this to impact the Indian markets?

We have already seen two tranches of $10-billion tapering each month. There are seven more to go. My sense is Asian emerging markets should be able to weather the effect of this withdrawal, much better than what we had seen during the 1997-98 Asian crises. The Indian fiscal situation and external situation are much better than what they were last year. We would see wobbles in our markets but I don’t think it would be anything catastrophic.



Is a stronger US economy better than a huge dollar flow for Indian markets? If so why?

The strengthening of the US dollar against the Indian rupee coupled with pick up in US growth augured well for Indian exports but has negative connotations for Indian imports.

This would work favourably for India’s current account situation which should be positive for Indian stocks. Added to that are cheap valuations of Indian markets which should support them at current levels. Markets are guided more by fundamentals and growth than by liquidity. If there is good growth, you will always find buyers. I don’t think there will be a dire squeeze in liquidity due to tapering in our country.



Do you think companies with high FII exposure will be vulnerable to large-scale exodus by FIIs? What should investors in these stocks do?

I have always believed that stock prices are only guided by fundamentals and nothing else. It does not matter who is buying or selling. If something is attractive because of fundamentals and if FII selling makes them even more attractive, it presents all the more reason to buy them. My advise to investors is not to be misguided into thinking that just because FIIs are selling they should also sell.



Which are the sectors / companies that are likely to benefit by the US economy gaining strength?

It is quite obvious that with the US economy gaining strength our export-oriented sectors, such as IT and pharma, would be clear beneficiaries as they would be able to get more business from the US. Rupee depreciation vis-à-vis the US dollar due to tapering would only help that cause.



Will the Chinese economic slowdown affect sectors such as metals?

Yes. Commodities such as coal and steel are particularly vulnerable. I only remain positive on iron ore for 2014.



While the BSE S&P Sensex is trading at 20,300 levels, many of the Sensex stocks are nowhere near their earlier highs. Do you expect investors to shift back to these stocks when the economy rebounds?

Automobile and banking sectors are the leading indicators of an economy. If there is an uptick in the economy, these will be the first to pick up. Since stock markets are barometers of an economy, this will be reflected in market levels also.



IT, Pharma and FMCG are the three sectors that have been holding the Sensex. Will investor fancy for these sectors wane when the markets recover?

It is very unlikely to play out this way because growth outlook for these sectors remains very positive and valuations are not euphoric. Future growth in these sectors will take care of elevated valuations. I don’t think there is any case for cashing out of these sectors right now.



Published on February 17, 2014

A letter from the Editor


Dear Readers,

The coronavirus crisis has changed the world completely in the last few months. All of us have been locked into our homes, economic activity has come to a near standstill. Everyone has been impacted.

Including your favourite business and financial newspaper. Our printing and distribution chains have been severely disrupted across the country, leaving readers without access to newspapers. Newspaper delivery agents have also been unable to service their customers because of multiple restrictions.

In these difficult times, we, at BusinessLine have been working continuously every day so that you are informed about all the developments – whether on the pandemic, on policy responses, or the impact on the world of business and finance. Our team has been working round the clock to keep track of developments so that you – the reader – gets accurate information and actionable insights so that you can protect your jobs, businesses, finances and investments.

We are trying our best to ensure the newspaper reaches your hands every day. We have also ensured that even if your paper is not delivered, you can access BusinessLine in the e-paper format – just as it appears in print. Our website and apps too, are updated every minute, so that you can access the information you want anywhere, anytime.

But all this comes at a heavy cost. As you are aware, the lockdowns have wiped out almost all our entire revenue stream. Sustaining our quality journalism has become extremely challenging. That we have managed so far is thanks to your support. I thank all our subscribers – print and digital – for your support.

I appeal to all or readers to help us navigate these challenging times and help sustain one of the truly independent and credible voices in the world of Indian journalism. Doing so is easy. You can help us enormously simply by subscribing to our digital or e-paper editions. We offer several affordable subscription plans for our website, which includes Portfolio, our investment advisory section that offers rich investment advice from our highly qualified, in-house Research Bureau, the only such team in the Indian newspaper industry.

A little help from you can make a huge difference to the cause of quality journalism!

Support Quality Journalism
null
This article is closed for comments.
Please Email the Editor
You have read 1 out of 3 free articles for this week. For full access, please subscribe and get unlimited access to all sections.