Nitin Jain, head, capital markets (individual clients) for Edelweiss Financial Services, speaks to Puneet Wadhwa about the uncertain economic environment and what investors could do. Edited excerpts:
Do you think with the onset of the results season and the coming review of monetary policy, the markets could now pay heed to domestic cues rather than galloping on liquidity?
Liquidity has been a major reason for the rally in 2012 in Indian markets and developments on this front would continue to impact sentiment. Currently, global factors are favouring the equities market, while domestic factors are neutral.
The recent US FOMC meeting minutes suggest most members are no longer in a mood to extend quantitative easing, unless the US economic recovery falters. Having said that, we believe the domestic factors are important. I agree the Reserve Bank’s policy meet next week and the quarterly result outcome would impact sentiment to a certain extent. Investors should play stock-specific in this scenario.
What is your assessment of the economic data from China and the US? How much of a concern is that for global equity and commodity markets, including India?
China’s growth has been coming down for some time and that would keep commodities under pressure. We believe it would be beneficial for India in the longer term, as lower commodity prices would help us lift our growth.
As for the recent economic data from the US, such as non-farm payroll additions, declining housing inventories and stronger personal consumption expenditure, these point to sustained economic growth, thus explaining the rally in the US markets. However, the recent outcome from the Fed Minutes has not been very definitive about further easing and would be important for sustainability of growth there.
What is your advice to the retail investors who missed the bus earlier this year? Will they get another chance in the remaining half of CY2012? Which sectors/themes/stocks still offer value at this stage?
We’ve been advising clients to buy into the market, especially on dips closer to 5,200 levels on the Nifty. We like interest rate cyclicals and recommend buying into private banks and capital goods, and continue to like consumption and agri-based stories.
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The mutual fund industry saw its total asset base shrink about five per cent in FY12. How do you interpret this? Are retail investors wary of investing in equities through the MF route?
Bad equity market sentiment, high fixed deposit rates and large tax-free bond issuances have been reasons for the decline in MF assets. Currently, asset allocation is moving towards fixed deposits and high-yielding debt, the reason for these redemptions in this market.
The turnover of 21 commodity exchanges rose 54 per cent till March 15 in the last financial year (2011-12), according to the Forward Markets Commission. Are investors preferring commodities to equities?
There has been a definite shift towards trading in commodities, due to many factors. Easy monetary policy has led to a surge in prices of precious metals, which contributes 60 per cent of the overall exchange volumes. This has led to increased participation from investors.
Also, poor performance and unfavourable sentiment in the equity markets has induced investors to increase allocation to commodities. Lower transaction cost and higher leverage has further enhanced the trading interest.
A lot of market participants were concerned with how the crude oil, rupee and bond yields panned out over recent weeks. How much of a worry is that for you?
The biggest worry for us is crude oil prices. In fact, the level of bond yields and that of the rupee would, to a certain extent, be driven by crude oil prices. Our sense is that crude will continue to trade at current levels, followed by a knee-jerk spike if the situation in Iran intensifies.
However, as has already been seen, the supply from other Opec members will rise and more than make up for loss of Iranian supplies, thus leading to a decline in crude oil prices over the medium term, especially as fear premium goes away. The US and G5+1 has indicated an inclination to renew talks with Iran over nuclear energy issues, which can really weigh on the prices if it reduces supply-side uncertainty.