At the start of the year, everybody was talking about moving from defensives to rate-sensitive and high beta stocks, on the back of reforms unleashed by the government, a growth-focused Budget and abundant global liquidity. Though the expectation of liquidity has played out well, the Indian market is among the worst-performing markets in 2013, despite inflows of $9 billion. Today, it seems we are back where we were six months ago and nothing has really changed. The Budget was a disappointment.
The large companies tell us they don't plan to invest, as things could change a year later from a political standpoint. From here on things will move very slowly. We expect the government to move slowly and the Reserve Bank of India has done its bit and can do little else to support growth. At this point of time, both local and foreign companies might defer investments, given the state of indecision. Indeed, given the political turmoil, the perception is that reforms have been thrown out.
Earlier, we were expecting FY14's earnings growth to be close to 15 per cent, but now we are looking at 10-12 per cent because of the lethargy that is evident. We are sticking with defensives and see no reason to buy capital goods, public sector banks or rate-sensitives because there is still time to do that. We are not comfortable with high debt companies, either.
So, the question is: Why is India getting this kind of money? That's because India remains the cleanest shirt in the laundry basket. China is not performing at all, as the unknown risks are more than the known ones. Brazil falls in a similar category. Despite the risk-on trade, following the positive data emanating from the US, emerging markets have not performed, particularly the BRICS.
One positive for India from this is with China cooling, commodities will not see any sharp run-up either. In fact, we believe that the great rotation trade is currently money moving out of commodities into equities and not from bonds to equities. This is positive for an oil-importing country like India.
As long as the world is in a risk-on mode, Indian equities will continue to see inflows. However, these flows will be impacted by triggers. So, if anything happens in Greece or Cyprus, the liquidity could reverse in the near-term. As a result, markets will muddle along, as they are neither under-valued nor expensive. Till clarity emerges on economic recovery, we would not look at mid-caps, as there are plenty of large-caps to choose from.
However, my longer-term view on India is slightly different. I think we are in a similar situation as we were in 2003-07. From here, markets will go up from point to point. Even though events would drive the markets, volatility would be less. The year 2014-15 could see acceleration in earnings and this would have an impact on the markets, too. So, going forward, Indian equities could go up significantly, but that is not likely this year.
The author is CEO, investment advisory, Ambit Capital
The large companies tell us they don't plan to invest, as things could change a year later from a political standpoint. From here on things will move very slowly. We expect the government to move slowly and the Reserve Bank of India has done its bit and can do little else to support growth. At this point of time, both local and foreign companies might defer investments, given the state of indecision. Indeed, given the political turmoil, the perception is that reforms have been thrown out.
Earlier, we were expecting FY14's earnings growth to be close to 15 per cent, but now we are looking at 10-12 per cent because of the lethargy that is evident. We are sticking with defensives and see no reason to buy capital goods, public sector banks or rate-sensitives because there is still time to do that. We are not comfortable with high debt companies, either.
So, the question is: Why is India getting this kind of money? That's because India remains the cleanest shirt in the laundry basket. China is not performing at all, as the unknown risks are more than the known ones. Brazil falls in a similar category. Despite the risk-on trade, following the positive data emanating from the US, emerging markets have not performed, particularly the BRICS.
One positive for India from this is with China cooling, commodities will not see any sharp run-up either. In fact, we believe that the great rotation trade is currently money moving out of commodities into equities and not from bonds to equities. This is positive for an oil-importing country like India.
As long as the world is in a risk-on mode, Indian equities will continue to see inflows. However, these flows will be impacted by triggers. So, if anything happens in Greece or Cyprus, the liquidity could reverse in the near-term. As a result, markets will muddle along, as they are neither under-valued nor expensive. Till clarity emerges on economic recovery, we would not look at mid-caps, as there are plenty of large-caps to choose from.
However, my longer-term view on India is slightly different. I think we are in a similar situation as we were in 2003-07. From here, markets will go up from point to point. Even though events would drive the markets, volatility would be less. The year 2014-15 could see acceleration in earnings and this would have an impact on the markets, too. So, going forward, Indian equities could go up significantly, but that is not likely this year.
The author is CEO, investment advisory, Ambit Capital