China's growth will impact fund flows to India: K Subramanayam
K Subramanayam, AVP, Institutional Research at Asit C Mehta spoke to Aastha Agnihotri on FDI implementation, overseas inflows and market outlook.
Government has cleared FDI logger-head in Lok Sabha, however, the approval from Rajya Sabha is still awaited. Do you expect government to wade through this hurdle and if yes, then how long will FDI take to materialise?
I think Rajya Sabha clearance is just a formality as we expect FDI to make it through in Rajya Sabha as well but what is important to look will be the implementation of the FDI. Though government has made it clear that the onus lies on individual states as to whether they want to bring in FDI or not but here lies a bigger problem as many states may still not favor it.
Even if, lets say Carrefour (French retailer) plans to enter India, it must get approval from state governments and also required logistics, ware-houses and much needed support for setting up chains which will be a problem. So overall, I think FDI will take some time to materialize which could be anywhere between 2-3 months or even more than that.
Do we have a makings of a new bull market for next year. Or it is too early to call it a bull market making. What is your view?
Oh yes, I would think so. We are in the making of a new bull market but it will be difficult to say as to when we will touch new highs, it could be in this fiscal or next calendar year too. Though we are seeing some pressure in the IT stocks but other key indices such as infrastructure, capital goods, metals have been supportive so its a sector rotation and whatever fell most earlier are outperforming now. Therefore, 6,000 levels on Nifty is very much attainable in near term.
Will China recovery impact pace of fund flows in India and other emerging markets?
China's growth will definitely impact fund flows in India. So far, fund flows in India was by default and not by choice but with prospects of growth in China which has also witnessed correction in past few months, FIIs might as well invest in China as they are here to make money. There were also buzz that 2013 is an year for China so it might come true. But relatively, I see slight amount of drop in Indian inflows if China sees a rebound.
What about the Indian currency? Does the rupee worry you?
Rupee will witness some pressure. In winters, crude prices usually goes up and that will impact local currency. Also FCCBs (foreign currency convertible bonds) are getting bunched up so some pressure could also seen from there. Therefore I expect rupee to be in negative and may fall to 56-57 levels in near term.
How has the earnings season panned out for you? What do you expect from the December and the March quarter results?
Last quarter was slightly weak in terms of earnings, however, third quarter may be better. Sectors such as cement, media and even metals are expected to report good December quarter results. Media is a buzzing sector with lot of M&A activities happening. These deals will take time to materialize but sector looks good. Also tyre sector is a lucrative space and with falling rubber prices, companies are likely to benefit.
About IT, I'm a little skeptical. There are bearish noises but w could expect Oct-Dec quarter to be mixed for them. So overall, in my view, third quarter will be better than the second quarter.
What is your advise to your clients on the mid-cap universe? Do you think some quality mid-caps have a good chance of outperforming over the next 12 months?
Yes, I have been recommending my clients to enter into mid-caps as they are clearly overpowering benchmark indices. Fertilizer scrips look good. We have recommended Sintex and also L&T Finance Holdings. Banks have already seen a run-up ahead of Dec 18 policy so they need to take a breather. Moreover, banks are still facing NPA (non-performing asset) issues which is a concern.
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