With the Indian equity market continuing to decline – the big question is should this correction be a cause of concern or should it be used as a buying opportunity?
According to Rahul Chadha, co-chief investment officer, Mirae Asset Global Investments the Indian market has run ahead of its fundamentals and correction was overdue. A 5-7 percent correction would be a healthy opportunity to enter the market, believes Chadha.
Globally, the correction has been on back of deflation fears; with oil correcting sharply there is fear that commodity producing countries like Russia may have some crisis. The deflation fears have impacted India too, plus earnings are not expected to be good and growth too is taking longer time to recovery. Therefore, market will pick up only if macro data improves further, says Chadha.
Sector specific, in India the house is bullish on private banks and remain most attractive bet in the market. The valuations too are reasonable, says Chadha.
They are also upbeat on the healthcare space although valuations look rich and would look to buy them on dips.
According to Chadha within the consumer discretionary space autos and travel and tourism space looks attractive
Below is the transcript of Rahul Chadha’s interview with CNBC-TV18’s Menaka Doshi and Anuj Singhal.
Menaka: Let me start by asking you to characterise the selling that you have seen over the last few days across global equities but a lot more severe here in India?
A: If you look at global equities it is basically the deflation fears which are pulling the market down. We have seen oil which is corrected sharply when we have lost close to about 50 percent in oil. There are fears that some of the commodity producing countries particularly Russia may have some bit of a crisis or you may have some bit of a collateral damage for some institutions. So, there is fair bit of fear in markets and risk of deflation which is pulling down global markets.
As far as India is concerned we have always believed that India post elections and with what government is doing on ground it makes one of the best stories in the region. However markets have run ahead of the fundamentals. Deflation impacts India also in terms of weak export growth. We have seen on ground also that consumers have not responded in India. Numbers are not expected to be very great in the current quarterly earnings. So, some bit of a breather was warranted for markets. Almost everybody is overweight. So some bit of a correction was necessary and that is what is playing out in India.
Menaka: How would you define some bit of a correction?
A: At least 5-7 percent and then again markets would wait for government to go beyond the ordinance and see some of these measures play out on ground in terms of improvement in IIP, improvement in manufacturing data. Eventually in next 3-6 months you need to see demand bounce back from the consumer side. So, it has to come in wage increases, it has to come in, in the feel good in the economy.
If today we look at stocks nobody is looking at FY16. Almost everybody is justifying stocks at FY17 which is always a tricky thing when you are sitting in January 2015 because you are looking two years out. Then you get upsides like 10-15 percent for some of these consumer staple names.
Clearly, there are parts of markets which are stretched. So, best case is fine correction. At times correction with about 5-10 percent price correction would be a healthy entry opportunity.
Anuj: It is interesting you said 5-7 percent because we have corrected 6 percent now from the top. So, are you saying further 5-7 percent from here or are you now saying that now we need to go through the time correction, the price correction may have taken place already?
A: We look at these quarterly numbers and from what is estimated like the way I said you have not really seen acceleration in revenue momentum here. So, you may see markets being soft on this and then again markets would look at the monthly auto data, monthly cement data before they tick up from there.
Anuj: Does the currency give you any comfort because even today we have seen quite a bit of strength in Indian currency despite the kind of risk off that we have seen globally or do you think it is only a matter of time before even the currency has to go towards the previous lows?
A: Currency clearly gives immense comfort which is why I am saying that should the markets correct another 5 percent or something you would be adding to the existing overweight positions because what RBI has done seemingly over last 6-7 months is build a warchest in anticipation of this which was much kind of an expected dollar spread for 2015 and I think that helps quite a bit because if you look at current account surplus economies like Korea also, there the currency has depreciated by 10 percent, look at Malaysian Ringgit you would see depreciation of close to 15 percent and we are not talking of the Rouble or the Australian dollar. So, currency gives huge amount of comfort on buying at dips.
more to come