The good news first. With commodity prices projected to stabilise and interest rates likely to ease over the next 12 months,the bottomlines of listed firms,currently hovering at around 8 per cent,could surge to 14-15 per cent by next year. The change in sentiments could propel the BSE Sensex to its all time high of 21,500 points by first quarter of FY14,says Dinesh Thakkar,CMD Angel Broking. In an interview with Surabhi,he has forecast that the BSE Sensex could touch 21,500 points and the Nifty 6,200 levels by the first quarter of 2013-14. The bad news is that corporate results are likely to be lacklustre this quarter and nothing exceptional is expected in the upcoming earnings season. Excerpts:
The RINL stake sale was deferred over issues of valuations. Do you think this will affect other PSU disinvestments also?
The government should be more focused on reasonable pricing. It should leave something on the table for retail investors so that they get returns on equity and have confidence to reinvest in the market. Investors lose interest with high valuations. So instead of focusing on deficit targets,the government should encourage people to invest in equity,especially at a time when they are investing more in gold.
Given that most PSUs are expected to follow government mandates,how attractive an option will be the proposed exchange traded fund for PSUs?
Fundamentally,PSUs are not attractive,until they are privatised. As long as they are run by the government,their bottomline and growth is controlled. So investing in it for the one- or two-year horizon is not wise. They are good buys for the long term and investors should have patience to hold them for 5-10 years and hold PSU stocks so that proper unlocking is done. We need to think beyond listing gains or divestment programme. They have a good value but in terms of growth are very limited.
What is your expectation from the market behaviour?
Corporate results are not very encouraging and we do not expect any fireworks in this quarter. Investors have also factored this in and the market is looking at the future 2013-14. We expect commodity prices to stabilise and interest rates to ease. Companies bottom line,which are currently at 8-9 per cent should rise to 14-15 per cent by next year. Liquidity and change in sentiments will take the BSE Sensex to all time high of 21,500 points by first quarter of FY14. The Nifty too should touch 6,200 points. But we dont expect GDP to grow at more than 6.5 per cent in the next fiscal.
Two new schemes have been launched this year qualified foreign investors and Rajiv Gandhi Equity Savings Scheme (RGESS). What do you think of them?
The QFI scheme has some procedural issues that need to be addressed. There is too much paperwork for foreign investors,making investing in India a very cumbersome process. Government should also think in terms of recognising regulators abroad so that foreign investors registered with them can invest directly in the country. As far as the RGESS is concerned,I dont know how effective or popular it will be as there are many schemes that give the same tax deductions and benefits.
Retail participation in equities is limited. Are we seeing a change in this trend now?
Retail participation is just about 1.5 per cent in India of which only 40 per cent accounts are active. So effectively,it is as low as 0.6 per cent. We need to bring it up to the level of 10 per cent,which is the level in China. In developed countries like the US,retail exposure to equities is even higher at close to 35 per cent.
Do you expect any monetary policy easing by the Reserve Bank of India in its next review?
Inflation is stubbornly high and RBI is waiting for the government to first address supply side constraints. Global oil and commodity prices are also easing. RBI may not ease interest rates immediately although it may cut CRR or repo rates. We expect interest rates to reduce by 100 basis points due to the mismatch in the credit demand and supply.
Do you expect a pick-up in corporate investments?
The reforms unleashed by the government will encourage corporates to invest more and will lead to more capex plans. The government has become pro-active as it wants to get back to growth rate of 7 to 7.5 per cent. This will then take us to a growth in savings of 37 to 38 per cent and investment cycle will pick up. We expect a pick-up in investment in the next fiscal. Investors and analysts are really looking at how FY14 will pan out. We expect the GDP growth rate of 6.5 per cent,while this fiscal we dont think that the economy will grow over 6 per cent.
How will the US and euro zone slowdown affect foreign investments to India?
As far as the US is concerned,the worst is behind us. The slight recovery in the US economy could have a positive effect on India. Even when the US was in a bad shape,we still did not see any decrease in inflows to India. India tends to gain from investors in US as compared to other emerging economies. Europe will also follow the US model and work on stabilising its economy. There are issues of common currency but breaking away will not help. Corporate earnings have not reduced there so liquidity has not reduced. The allocation to India will remain and may even increase.