'General Elections could be a game changer for markets'

Q&A with Ashu Madan, chief operating officer, Religare Securities

In conversation with Aastha Agnihotri, Ashu Madan, chief operating officer, Religare Securities talks on the political turmoil surrounding the government, the tapering plan of the US Federal Reserve move and the outlook for Indian markets in this backdrop. Edited excerpts:
 
Is the current rally in market a bear rally or is the worse already priced in and we are good for more on the upside?

The current rally is a bear market rally because basic fundamentals of the Indian economy are still challenging and this rally is just knee-jerk reaction of some hope from new RBI Governor to maintain the currency and also on account of extreme pessimism and short covering in the market. Though I feel we should hold on the lows we witnessed last month.

 

Market has to an extent factored in US Federal Reserve's tapering news. If Fed move does falls in-line with the expectations, by what quantum do you expect tapering to begin with?

Market has factored in tapering by the US Federal Reserve to the tune of $10 billion. So any level up to $10 billion should not come in as a surprise for the markets. However, in my view, they may go slow in terms of tapering of the stimulus which may be anywhere between $ 5 – 10 billion only.
 
What are your expectations from the credit policy this Friday? Will it be a non-event for the markets?

The Reserve Bank of India’s (RBI’s) monetary policy review would be a non-event because the Wholesale Price Index (WPI) is still high at 6.1%. Therefore the RBI Governor doesn’t have room to cut the interest rates or do any major tinkering.
 
What is the sense you are getting on the rupee now? Where do you see the currency by the end of the calendar year?

Rupee has come down significantly from the levels of 70 to 62.5 per US dollar very sharply because of some measure taken by the RBI in near-term. Overall, I think rupee would restrict in a limited range of 62 to 67 in near-term and any major breakout on either side is difficult.

 
How big an event will general elections be for the markets? Do you expect surge in volatility ahead of the event?

General Elections can be the game changer for the Indian markets. If any stable government comes into power then we may see huge investments in many sectors which will boost the economy. At the same time market sentiments will also see a huge uplift as a clear picture will emerge in terms of who will be at the helm. However, the way political equation stands at the moment, the phase of uncertainty will increase. Therefore, markets will be extremely volatile ahead of the elections.

 
How are you approaching banking space now? Would you recommend cherry-picking or is there more downside in the offing?

Banking sector would continue to be in stress because of huge NPA (non-performing assets) and low demand by industry and restructuring will come to haunt considering the current economic situation at some point in time if not improved drastically.

What are the stocks/sectors you are bullish on at this juncture?

I think once should be very selective in their approach in terms of stock picking. Overall one may look at stocks in spaces such as pharmaceuticals, Information Technology and FMCG where there is visibility in earnings.