Kaushik Dani, Head –
Equity, Peerless Mutual Fund believes that India will continue to be an
attractive market for FIIs over the long term despite all the headwinds.
The depreciating Rupee has caused a lot of anxiety. Where do you see the Rupee heading from here?
The Rupee has depreciated by almost 9% from April to June. The Rupee would continue to face pressure and remain weak for some time. There is a possibility of the Rupee bouncing back in the near term on the back of improved current account deficit numbers and reversal of foreign outflows.
Given the weak currency, do you think RBI will put a break on further rate cuts?
Yes, it would be difficult for the central bank to go for a rate cut because of the weak Rupee. The benefit of lower import bill gets negated by a falling Rupee. It also tends to have an adverse effect on inflation. Although inflation is softening, there is a possibility that it may inch up. In the immediate run if the Rupee continues to hover above 60 then it is difficult to expect any rate cuts. We are not expecting any rate cuts in the forthcoming policy announcement.
How do you gauge the current valuations of markets? How are you evaluating the FII movements?
Indian markets are not cheap. Compared to other emerging markets, the Indian market has always remained expensive because we are a domestic demand driven economy and our quality of earnings is superior. Some of the BRIC nations are purely dependent on commodities and exports. So our valuations are fair and we continue to attract foreign inflows. Even after adjusting the FII outflows from the last one month India has received close to $13.50 billion in 2013.
FIIs hold a big chunk of India portfolio. India is $1.5 trillion market out of which 20% is held by FIIs which is about $350 billion. In the recent past we have seen FIIs pull out around $1.6 billion which is not a substantial amount. If there is a global crisis and investors rush to safety, then India is no exception. From 2009 till date, foreign inflows are close to $85 billion. Irrespective of all the short term challenges and negative news, India is one of the favorite markets for FIIs. Among the BRIC nations, Brazil is down 25% YTD while Russia is down 15%. Only India and China have outperformed.
You have only one equity
scheme. Are there any plans to offer more equity schemes going forward?
We would like to have differentiated products rather than launching generic equity schemes. We believe in providing solutions rather than products. That’s the reason we came out with an income fund which is quasi MIP. Then we launched a child plan which invests in three asset classes. We will come out with more solutions over a period of time.
Are you taking exposure to sectors which might benefit from the weak Rupee?
We actively scout for opportunities. Some of the sectors where we have invested are strategic and others are core. We have increased weightage to sectors like IT, technology, healthcare, pharmaceutical sectors which would benefit from the weak Rupee. We believe that pharmaceutical sector can outperform the market.
What would be your advice to investors at this juncture?
India will still be a better market even if we continue to grow at 5% to 6% for the next five to seven years. India is a $1.5 trillion market and there are not many markets which grow at 5% to 6%. That is what attracts foreign investors. If you invest in a stock for a year it actually gives returns only 10 or 12 days for the entire year. So one doesn’t know which 10 days you would make money. Since it’s difficult to time to the market the best way is to invest through SIPs.
Where do you see the crude oil heading?
Crude oil will remain range bound over the medium term around $85 to $110. If you exclude India, China and other fast growing economies, the demand for crude is actually declining. The emergence of alternate fuels like shale gas and rising inventories will put pressure on the prices of crude. As long as crude remains below $100 it bodes well for our economy.
What are the key risks to our markets at this juncture?
The current account deficit and fiscal deficit remain the two key concerns for our economy. We feel the situation could become grave if we don’t address it immediately. Inflation is another area of concern but it is cyclical in nature and there are some positives. A normal monsoon will keep inflation in check.
Does the mid and small cap sector look attractive?
The BSE 500 index is 94% of India’s stock market capitalisation. There is an opportunity in the mid cap space but such companies don’t have pricing and scalability power as compared to large caps. Mid-caps do well only when the economy is growing fast. Large companies can manage themselves during bad times but small companies don’t have such leverage. FIIs usually invest in blue chip stocks when the economy is not doing well. As of now, investors should avoid exposure to mid caps till a few quarters.
