Nimesh Shah,MD & CEO,ICICI Prudential Mutual Fund believes India growth story is still intact and it is just a matter of seizing right opportunities. In conversation with Ritu Kant Ojha of The Indian Express he says,The trigger for the equity markets at this point of time will be a fuel price hike and a possible resultant rate cut by RBI. Directionally markets are expected to remain volatile and thereby provide investment opportunity. Excerpts:
With early signs of impro-vement in US economy,money started moving from Emerging Markets to US. Do you think India growth story was taken just too seriously?
India has always been a frontrunner on growth and slight moderation of growth does not mean that there are significant concerns that cannot be addressed. Opportunities still continue to exist and it is just a matter of seizing those opportunities. On the FII flows,it depends on factors like relative valuations and risk perspective. We believe that the FIIs continue to believe in India story but are clearly looking for cues like affirmative action on reforms and be swift in execution.
Since 2008,equity markets have not stabilised and there is no secular trend either ways. Why should an equity investor keep hope?
The global experience of equities as an asset class has been that it is a mean reverting asset class. Hence periods of underperformance/ negative returns usually translate to being right time to invest. In the current context,the most important factor is that equities are attractively valued compared to 2007 and therefore continue to present long term investment opportunity. Valuation,Economics,Sentiment and Trigger are the metrics. At this point of time valuation is comfortable,economics is a concern due to high fiscal deficit and high global crude prices. Sentiment justifies the investment in equity given the generally apathy towards equity as an asset class over the last 5 years,and the trigger at this point of time will be a fuel price hike and a possible resultant rate cut by RBI.
What kind of impact could fuel price hike have on the equity markets?
A fuel price hike will be a clear positive at it could provide RBI comfort for monetary easing and it would therefore be positively received by the equity markets. Hence a sharp increase in diesel price will actually be beneficial in the medium term because monetary easing can happen due to the fiscal consolidation on fuel price hikes. We can then possible expect RBI to initiate significant rate action in its April policy. As long as India is importing oil at 125$ there is an implied inflation alrea-dy present in the economy which may or may not get reflected in the WPI but is clearly reflected in the economic data. Therefore the long term benefits of fuel price hike for the economy through reducing fiscal defi-cit clearly outweighs shorter term inflation worries.
How important would be the corporate results,to be announced in April,for the equity markets?
In the current scenario,we believe that corporate results are not the primary drivers of equity markets. Oil prices hike and subsequent monetary action is more important than corporate results and will drive market sentiment.
Is there money to be made in this market?
Money can be made due to volatility. There is long term value in the market as there are many stocks with attractive valuations. The market will require the government to take the fiscal consolidation roadmap ahead. Until then we continue to be neutral towards equity markets and would look for triggers like correction in brent crude prices and hike in diesel and petrol prices to increase allocation to equity. On the sectoral side we have been consistently positive on exports and still believe that investors should continue looking at exports in view of the high prevailing trade deficit.