Placing emphasis on the structural reforms being undertaken by the present government, KK Mittal, Managing Director, Globe Capital, remains bullish on the Indian equity markets. Speaking to Faraan Tarique, he shares his views on sectors which are likely to lead the gains in 2015.
Global growth concerns were back in focus following the forecast of the World Bank. To what extent such factors are likely to weigh on Indian markets given the persisting doubts about Chinese growth and recovery in Europe and America?
The World Bank has estimated that India’s economic growth would catch up to Chinese growth of 7 per cent by 2017. The Indian economy is going to be benefited by lower commodity prices, lower inflation, and an increase in domestic savings and acceleration in investment cycle making it resilient to the slowdown in Europe, Japan and other parts of the world
Certain sector specific stocks were quite active in recent sessions such as FMCG stocks on rating upgrades and policy actions, Capital Goods stocks on strong IIP data. What strategy should retail investors adopt in the near to midterm on stocks in these sectors?
Gains in FMCG sector are largely due to lower commodity prices and the margins are expected to improve on sustained demand. Investors have remained invested in FMCG sector or have bought the stocks on decline and market corrections.
Capital goods are likely to be upgraded as a lot of initiatives have been taken by the present government to begin structural reforms in order to boost long-run growth and inclusive development. The sentiment among the business community and investors has improved significantly. There is a lot of idle capacity in power generation due to non-availability of fuel and fuel linkages. Commodity prices are low at present, which can help to keep energy cost low, scale up production and improve cash flow and operating leverages.
Do you think weak commodity prices particularly of crude and key metals reflect shrinkage in global demand? What impact one can expect on equity markets due to this?
The lower commodities prices particularly of crude, metal and minerals will open opportunities for India to improve its policies on coal mining, power distribution, construction of roads, railways, logistics parks and defence productions. There are a lot of opportunities opening up domestically for investors to invest in such companies which are set to leverage the low commodity cycle by way of cap-ex, improving efficiencies etc. as India is all set to enter the next lag of growth cycle.
Do you think the recent rally in rate-sensitive stocks particularly, bank and realty shares, following the surprise rate cut by RBI is based on sound fundamentals? Do you expect any mid to sharp correction in the near to midterm?
Banks are rallying on anticipated improvements in the fundamentals of the economy and significant reduction in policy rates. We are expecting a lot of improvements in the rate sensitive sectors as there is substantial scope for lowering policy rates and introducing reforms in policies. A Lot of stalled projects where bank finances are blocked are expected to go on stream and may become cash accretive.
Do you expect RBI to maintain its dovish stance in near to midterm and how extensive would be the future rate cuts?
We are expecting that the RBI policy stance will be accommodative and would be driven by data on inflation and inflationary expectations. With the current scenario on inflation, CPI as well as WPI, a cut of around 100 basis points of cannot be ruled out in 2015.
What should be the strategy on IT stocks post impressive third quarter Infosys and Wipro numbers and sub-par results by TCS? How much will the fluctuations in the currency rates impact these stocks?
It is believed that investment in technology may not come down substantially but there may be some slowdown in project allocation. There are a lot of new innovations taking place and businesses are adopting new technologies. With the thrust on digital India a lot of opportunities are expected to open up in IT and IT related services within India. Indian IT industry is better placed to capture the business globally and domestically. The result of Infosys has already demonstrated the same. The impact of currency fluctuation is dependent on individual company’s hedging policy, but on the whole there may be some impact to the tune of three to four per cent.
