n an interview with ET Now, Sandeep Bhatia , Executive Director & Head of Sales, Kotak Institutional Equities , talks about the Indian market and corporate earnings, and shares his views on a range of stocks. Excerpts:
After QE2, no QE3. Is that a short-term negative for India and medium-term positive for emerging markets?
It is a good thing for all of us that there is no further liquidity infusion. Running the global economy on steroids of liquidity is not the long-term solution. We have seen significant asset price inflation come through on the back of liquidity infusion, which has happened before. As far as India is concerned, the negatives that we face are primarily on the back of internal issues. Other than that if we didn't have internal issues, then the market would not have definitely looked so weak. Underlying growth trends, corporate earnings growth still remains fairly solid at 15-16%. If we see a change in the policy environment, we will definitely see the markets finding their fate.
QE3 not coming about, what kind of impact would it have to flows into emerging markets like ours?
India is not getting much flows through this year because of the political disturbances and clearly the QE3 not coming through may have some additional impact but this is a three-month or a six-month kind of a timeframe or an outlook one could take on liquidity hitting emerging markets and also India if QE3 does not happen. I do not think that we even knew where the QE3 will not at all happen. We could see a QE3 return in the run-up to the presidential race in the US by March next year. So we could see QE3 come again. Instead of happening in June-July of 2011, we could see a comeback in March 2012. So let's hold our horses, but in the US, there is very strong academic opinion now building up that further liquidity infusions are just raising commodity prices rather than helping economies.
You just concluded your investor conference as well. What are you picking up from global as well as domestic investors? Are there signs of waning risk appetite?
We have seen signs of waning risk appetite also this year, and this would continue for most of this year. Clearly by September-October if we do not see an end to the political deadlock at the centre, then we probably have a washout here for the whole year. Other than that, investors are looking at valuations, which are looking interesting, but currently they do not have the guts or they do not have the appetite for taking further risk on even sectors which have beaten down valuations. We see investors sticking to defensives. We see them sticking to the likes of ITC, Hindustan Lever, Bharti, which they see as cash proxies rather than any significant capital growth drivers, but it is better to protect money rather than lose money in these markets.
Your conference was centred in and around infrastructure stocks. So why are you showcasing infrastructure stocks at a time when cost of capital is going up at a time when markets are getting a sense that the government's spending for the second half could also slow down?
One should look at ideas, which are anti-consensus, at regular intervals and this infrastructure conference basically showcased the best of such ideas. Clearly valuations have come off. There is a lot of uncertainty in the environment. We know that interest costs will go up but our opinion is that interest rates will peak in the next 3-4 months. We would see maybe another 50 basis points in policy rates by the RBI . After which a combination of a slowing economy and maybe flat to falling commodity prices globally will mean that the inflation trend would be down and to that extent, we are very probably much near the bottom in terms of valuations for these stocks. It is difficult to say whether we will see immediate bounce back in the fourth quarter of this year or it will take longer for a bounce back.
source-economictimes
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