ASK Raymond James is one of the most active portfolio management services companies in the country, catering to super rich Indians, corporate clients and NRIs and offering investment advisory services to offshore funds. Sameer Koticha, its executive director, discusses the current market trends. Excerpts: Are the Indian markets reacting to global cues?
India is more dependent on domestic factors. The India growth story is largely based on domestic consumption and higher spending in infrastructure. Outsourcing is another major factor contributing to this growth. A global slowdown would result in more and more companies opting for outsourcing to India for cost advantages. It would not be improper to say that India's growth is not entirely dependent on global factors. So why are the Indian markets reacting whenever there is a global fall in stock prices?
The main reason for this is the class of investors participating. There is a considerable FII (foreign institutional investors) dominance in the Indian stock markets. These investors tend to react to global market trends. So, the volatile movement in the stock market can be largely attributed to the FIIs, which are reacting to global events. And it has nothing to do with the India story. We feel every fall in stock prices is creating an opportunity for long-term investment. The fundamentals of corporate India continue to be good. How do you view the influence of FIIs in the domestic markets?
The influence of FIIs is a result of their region-based strategy, as a result of which they act and react simultaneously. But, if you look at the market cap in the context of the growing size of domestic mutual funds, the high savings rate and the fast-developing equity cult, I think the dominance of FIIs would reduce progressively in the coming years. Will the rising interest rates, inflation and growing wages result in a slowdown in earnings for companies?
India is on a high growth path. We see a long-term sustainable growth story thriving on the three engines of high infrastructure spending, consumption and outsourcing opportunities. We do not expect a slowdown in any of these areas. What we are seeing now is an intermediate period. For the first three years of growth, the high growth was supported by surplus capacities. As a result, we did not see much impact on inflation.
Now the growth continues, but there is an interim phase of mismatch between demand and supply. Hence, there is some upward pressure on inflation. But, there is no reason to believe that the pressure on inflation will continue because companies are adding more capacities through capex or acquisitions. So, we should see supplies increasing at the same pace as demand and it should result in the easing of pressure. Similarly, the government is also undertaking measures such as reduction in excise and import duties to increase the supply side. It will take a short while for the entire consolidation to happen and, consequently, we may see the pressure on inflation easing.
Your take on the government's decision to restrain cement and steel companies from hiking prices.
The best markets are normally the open markets "� markets in which demand and supply are allowed to match without artificial intervention. But, the government has its own responsibility to manage the macro picture in the interest of the country. There is a high-intensity pressure (on prices), which needs to be controlled. We believe these are all measures in the short term till the consolidation phase is over. It should not be construed as a revision of policy. There will not be any reduction in corporate earnings. But, they may not be able to post higher profits for some time. What are your views on the markets. Is the correction a good time for investors to enter the markets?
In this correction, there are several good stocks whose prices have come down and we know that their fundamentals are very sound. The correction provides investors with an opportunity to buy such stocks with a better margin of safety. There are opportunities, but they are stock-specific. Markets will display their own behaviour, but investors will have to keep their eyes fixed on the long-term fundamentals of companies. Similarly, valuations are not a concern, if you are looking at a 3 to 5 years' time horizon. But the fact remains that investors are looking at valuations with a short-term perspective and are acting accordingly. Which are the sectors you are bullish on?
We like industries and companies participating in the infrastructure growth. We also like companies in the financial services sector. Real estate is another sector that will benefit from the economic growth story.
