Domestic markets to remain buoyant in the medium to long term.(Photo: PTI)
Aashish Somaiyaa, chief executive officer, Motilal Oswal AMC
After a rate cut of 50 basis points by the Reserve Bank of India in its fourth bi-monthly monetary policy on September 29, Aashish Somaiyaa, chief executive officer, Motilal Oswal AMC tells Financial Express Online that international developments, domestic political events and continued economic data, especially corporate performance will give direction to the markets. He added foreigners will fall in love with India all over again and this time more strongly with a lot of positive discrimination in our favour. Here are the excerpts from the interview:
Q. What is your take on a 50 basis points rate cut by the Reserve Bank of India?
A. It was definitely a positive surprise. Our belief is that he RBI has made best use of limited window of opportunity created by the unexpected continued pause stance of the US Fed. This 50 basis points cut will give much needed fillip and more importantly a positive guidance for the direction of the economy from here on.
Q. How it will impact public and private sector banks?
A. Accommodatory stance is a relief for both types of banks from perspective of a bottoming signal to economic woes, treasury gains and stress on account of continued high rates. It’s a larger relief for public sector banks whose fortunes are more closely linked to economic prospects. Capitalisation of banks coupled with a relaxed monetary stance are steps in right direction to kick start banks ability to engender and participate in a revival of investment cycle.
Q. How do you see infrastructure sector after the rate cut?
A. We don’t see any immediate impact except that with some lag effect one can see early signs of revival in the investment cycle and some relief on debt servicing burden. This doesn’t immediately change economic prospects of infrastructure companies from a shareholders perspective.
Q. Do you think RBI rate cut will bring in some cheer for the auto and real estate sectors?
A. These two sectors would be the biggest beneficiaries more so real estate in light of relaxed provisioning norms for affordable housing as a sector.
Q. Do you expect further rate cuts in the ongoing financial year? Why?
A. We do not expect any further rate cuts before clarity on the movements of the US Fed. We find it hard to visualise continued rate cuts in India were the Fed to get into a step by step rate hike cycle.
Q. How do you see domestic equity markets at the current juncture? Where do you see Sensex and Nifty by March 2016?
A. We see continued buoyancy in domestic markets in the medium to long term. In the short term, one has to be prepared for high volatility emerging mainly from the international scenario plus domestic political events. Over the next 3 to 5 years we expect India to decouple from other emerging markets basket and stand out as an investment destination or asset class on its own.
As an investor in the markets, we are strictly bottom up and our level of confidence comes from economic performance of the companies that we buy. We firmly believe that returns come from earnings and not from stock markets whose main function is to provide liquidity and price discovery. Hence, we do not predict market levels. If I had to hazard a guess, keeping all factors in mind I would say we are very attractively priced. We are at a level which we saw before the election results of 2014 which were accompanied by some of the worst macros. All of that is behind us and but we are back where we were.
Q. After the rate cut, what are the other factors which can give direction to markets from here?
A. I would say international developments, domestic political events and continued economic data especially corporate performance.
Q. What are the key concerns facing the economy? Are global issues also having an adverse impact?
A. I think local concerns are overstated, we need to watch for news emanating from China and the reaction of developed economies as well as developed market investors to those news.
Q. Do you see a lacklustre market for some time or will there be some renewed interest after the recent fall?
A. We are confident of sustained interested in Indian markets. Domestic investors are continuing to invest. It’s not only relative attractiveness of equities compared to other asset classes but also sustained entry of new generation of investors into markets. Habits change with generations and hence equity is here to stay as a staple allocation for investors from here on.
Q. What is your take on FII activity that we have seen so far? In the first FIIs half of the ongoing financial year net outlows by FII were over 14,000 crore, how do you see the second half? Do you think this outflow will continue?
A. In the near term, I would say their behaviour will be unpredictable because when there is adverse development the selling tends to be indiscriminate. But as we saw in 2008 when the dust settled we got more money than we lost. I expect foreigners to fall in love with India all over again and this time more strongly with a lot of positive discrimination in our favour.
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