Oil, dollar continue to be key headwinds for market: Malay Sameer

The markets may not swing either side based on the outcome of assembly elections, says Sameer

Oil and the dollar continue to be key headwinds for the market, says Malay Sameer, managing director (institutional equities) of IndiaNivesh Securities. He tells Samie Modak that while a fall in the two has provided the much-needed relief to the market, the situation could turn grim if oil prices rise again. Edited excerpts:  

The benchmark indices are down 15 per cent from their peaks. Do you think the correction is overdone or is there a risk of more downside? 

The recent low of 10,000 on the Nifty is unlikely to be breached. There may be a re-test of 10,000 in the near future but this level will offer strong support, like in the recent past. Markets can be excessive both on the upside as well as downside. The recent correction was a clear illustration of this. The liquidity crisis triggered fears of a systemic failure leading to a spike in bond yields. Also, the markets saw a record foreign outflow in October. Market bottoms are usually formed when fears are at their superlative high. Something similar was witnessed recently.

Where do you see the markets over the next one year? 

Over the past two years, industry has faced teething problems due to demonetisation and implementation of GST. The positive effects of increased digitalisation post demonetisation and the ease of doing business due to implementation of GST will be felt by the economy in the coming year. If supported by a stable government at the Centre, the market could touch new highs.

What are the key headwinds the market faces at this juncture? 

The rise in crude prices and rupee depreciation are the key headwinds. Both the dollar and crude prices jumped in October proving to be a double whammy for the markets. The rupee has recouped some of the losses, while oil prices too have come off. This has brought relief to the markets. If crude strengthens again, it would put pressure on the rupee and pose serious headwinds.

How will the election results – first the assembly elections and then the Lok Sabha polls – affect the market? 

The state election results would be a lead indicator to the general elections. The markets may not swing either side based on the results outcome though. Stocks would actually wait for the final outcome to decide the future course. Until then, there could be volatility, but no major move.

Which are the sectors or themes or stocks that are looking attractive at this point?

We expect pharma stocks and private banks should do well. Dr. Reddy’s, Maruti and Bharat Electronics are attractively priced. ICICI Bank and Spice Jet could be the dark horses.

Do you share the concerns that MF flows could see further moderation given a spike in volatility? 

As market volatility is expected to stay elevated, there is all the more reason to play the market through experts. The inflow to the MF industry is likely to grow year after year, for many more years to come. There is a paradigm shift in the way retail and large investors would invest in the future.

Do you think foreign portfolio investor (FII) flows in the Indian markets will remain weak? 

FIIs have been selling to protect their portfolio from currency deprecation. In a rising interest rate scenario, it is only natural to see a move away from risky instruments to fixed-return instruments. This has caused withdrawal of funds from risky assets in developing markets – India is no exception to this FII outflow. Once the interest rate hikes in the US start to plateau, the inflows to emerging markets should begin to do so too. At least, the outflows would stop.