 "Samir Arora")
Though the Nifty hit an eight-month low on Thursday, Samir Arora, fund manager, Helios Capital Management, believes the markets will be reasonably higher in the next six to 12 months. He tells Joydeep Ghosh that with the government reigning in its fiscal deficit and front-loading of capital expenditure, all the macro indicators are in the right direction and this will soon reflect in corporate earnings and stock prices. Edited excerpts:
After the initial euphoria about the economy, things seem to have significantly slowed. Do you see interest, especially from foreign institutional investors, waning?
FII interest is very high. Although inflows in recent days have clearly slowed and even become negative, we believe this is temporary. Liquidity is low, so the price impact of any selling has become magnified.
We feel good about the economy over the next six to 12 months. The government has done the tough job of reigning in the fiscal deficit and can now afford to step up capital expenditure in areas like road building, railways and rural infrastructure. We already know, based on April data, that the government is trying to front-load such capex.
The Reserve Bank of India (RBI) has been clearly harsh in their commentary and in packaging their 25 basis points cut with warnings on every front. However, we expect they will still cut interest rates at least one more time before the calendar year-end.
What are the key concerns facing the economy? Are global issues also having an adverse impact?
There are a few concerns. Adequacy of the monsoon is being watched closely, for it affects the rural economy, already suffering from the government's otherwise-needed policies of reining in food inflation.
The other issue is clearly about the health of some of the highly-leveraged companies in the infrastructure and real estate sectors, whose stocks fall 10-20 per cent on any random day and create nervousness about their lenders/brokers, who have financed pledged shares. It causes collateral damage to other stocks in these sectors.
RBI wants to teach these errant borrowers a lesson in this tough time but although we might talk about moral hazard, the reality is that tight monetary and other policies will cause problems for everyone else. We want to do what is "morally right", while the whole world marches ahead with what makes practical sense. Global concerns are not driving the current weakness in Indian markets.
There is a disconnect between Gross Domestic Product numbers and corporate results. Is that a problem?
Not much, as no one is going by the new GDP figures.
With the Sensex's one-year forward price-to-earnings multiple below the 10-12 year average, do you think the markets are in an oversold zone?
It is clearly oversold and we have a habit of overdoing everything; there is limited independent thought in our market. India has also failed to develop a strong local investor base and, therefore, everything is decided by what FIIs do. And, they themselves chase momentum half the time.
Do you see a lacklustre market for some time or will there be some renewed interest after the recent fall?
I expect the markets will be reasonably higher from current levels in the next six to 12 months. All the macro developments are trending in the right direction and it is only a matter of time before corporate earnings start growing at a strong clip and gets reflected in stock prices.
