 "Gopal Bhattacharya")
Central bank actions have kept stock markets choppy across the globe in the past few weeks. GOPAL BHATTACHARYA, Head, Global Markets - India, Société Générale tells Puneet Wadhwa that he does not think that a deep correction is imminent at this stage. Edited excerpts:
What is your reading of the policy action by global central banks — US Federal Reserve, Bank of Japan (BoJ) and the Reserve Bank of India (RBI)?
The rate cut by RBI was somewhat curious. A majority expected a cut in December. Most felt that with the change of leadership at RBI, there would be a few weeks of wait-and-watch. For me, what stood out was that this was the outcome of a unanimous decision of the first ever meeting of the new six-member Monetary Policy Committee (MPC).
While inflation looks contained well within the tolerance range, it does seem that room to make further quick rate cuts will be difficult. I think, the policy makers will now focus more on ensuring better transmission of the rate cuts and resolving the NPA (non-performing assets) situation, eventually focusing on higher credit growth.
While the US Fed kept making suitable comments to prepare the market for a rate hike in probably December, the BoJ introduced a new measure to restrain long-term yields. As regards the US, the likely scenario is continued low rates, with one or two rate hikes over the next several months. We expect the first hike in December, as the Fed might not want to add more uncertainly near the American elections.
How do you see the global financial markets playing out over the next few months in this backdrop?
In terms of their reaction to the central bank actions, the risks of excessive volatility might be somewhat overstated. Clearly, the world is hungry for growth and policy makers (both central banks and governments) will do all they can to support this imperative. The risks of asset price bubbles are obvious in some places, but the major stock indices don’t look wildly overpriced or suggest a deep global correction is imminent. The investing climate remains positive, on the whole.
Has the market decisively put the Indo-Pak event behind?
That remains to be seen. But, judging by the astuteness with which this has been handled at the highest level in India, post the event, you can see a lot of awareness to ensure India’s other interests are not impaired. In any event in today’s financial markets, money can be pulled out very quickly. So, “going slow” does not really serve any purpose.
We must not forget that for money managers, while there could be fear of a decline in portfolio value, there is also a fear of missing the bus. India remains, and is likely to remain, among the fastest growing large economies in the world. I am not unduly worried.
So, is it a good time to invest?
It is always a good time to invest. There might be exceptions but from the Indian context, most forecasts suggest an economy growing at over seven per cent annually for the next few years. There cannot be a better time. In terms of global factors, as I said earlier, all the major policy makers are going for growth, in some cases with a greater tolerance for inflation. Yes, there are chances of asset bubbles in some markets but I doubt if Indian stock indices are in that category.
Your expectations on Q2 earnings, and for FY17 and FY18?
Corporate earnings might be turning around and we could even see some positive surprises. I’d expect earnings growth of 12-15 per cent for large companies, on average, for FY17 and FY18. A good monsoon, boost from the pay commission salary recommendations and an accommodative interest rate regime are positive factors.
Which sectors do you still find value in the Indian context?
Value is a difficult word and can mean many things. If you mean it in the sense of “bargain stocks”, I think it could be a difficult search. Rather, it may be better to focus on investments which are available at a reasonable price and where the underlying business has a good growth track record. From the latter perspective, there may be value across many sectors.
Your advice regarding interest rate-sensitive stocks, given that they have outperformed in past few months?
They tend to do well in economic upturns and in accommodative interest rate environments, which is likely to continue. On real estate, especially housing, there might be pockets of value but one will have to be very selective.
What is the road ahead for telecom companies?
The road ahead is going to be difficult but in, say, two to three years, when the dust settles, some of these companies might be attractively positioned. There will be high entry barriers, a large market growing rapidly, with predictable returns. The danger is if only one or two players remain and they develop monopolistic business models. In which case, the government of the day could be tempted to look at this as a public good and impose difficult regulations.
