Geopolitical risks are being ignored in India: Ambit Capital CEO Saurabh Mukherjea2 min read . Updated: 08 May 2017, 06:04 AM IST
Ambit Capital CEO Saurabh Mukherjea says unless there is an economic recovery in India, there is no fundamental support for the market rally
Indian markets are at record highs. What do you think is driving this rally? Is there more steam to this rally, or will the party be over soon and why?
The rally in the Indian markets is driven by a surge in liquidity. However, unless there is an economic recovery in India, there is no fundamental support for such a rally.
High networth individuals (HNI) have realized that tax evasion is difficult and, hence, they are gradually shifting to financial assets from physical assets, especially residential realty.
It looks like there is a bubble in the bond market and the equity markets, too, are expensive now.
When and by how much do you see the earnings recovery happening for Indian companies?
For almost four years there has been no earnings growth recovery in India in absence of capex upliftment in sectors like real estate, auto and steel. Earnings are not expected to recover in FY18 as we are unlikely to see growth in capex. However, the metals and mining sector may see slightly better growth due to higher global commodities prices.
Where does India stand in your emerging market/Asia preference? Why?
Foreign institutional investors, or FIIs, are optimistic on India. This is partly because emerging markets like China have delivered very little in the past. In the past three, five and 10 years, India has outperformed other EMs on risk-adjusted assets.
Will Donald Trump’s tax cut plans impact emerging markets in a big way? How much impact do you see on Indian IT and pharmaceutical sectors from the US visa curbs and protectionist policies?
The US markets have partially factored in a Trump tax cut. But if he fails to deliver the taxation reforms as promised, that may dent the Trump trade in global markets.
Big Indian IT companies may not ultimately be affected by the H-1B visa concerns. The better-run pharma companies in India are aware of the FDA (Food and Drug Administration) related compliance issues and are taking corrective steps to deal with those.
Are geopolitical risks being ignored by global investors?
Yes, global investors are largely ignoring geopolitical risks. Neither Brexit, Trump’s election as the US President nor demonetisation (of high-value Indian currencies) has had a tangible impact on equity markets.
What are the key risks to this rally in emerging markets, particularly India?
Credit growth of government-owned banks is not seeing any recovery, and the situation is actually worsening for these banks.
The Reserve Bank of India, or RBI, and the government do not seem to have any plan to fix this problem.
Non-banking financial companies (NBFCs) are focused on lending to the small and medium enterprises (SMEs), which the banks turn away.
Now, at a time when the black money squeeze is hurting these SMEs, these NBFC stocks are at record highs. That does not make any sense to me.
Which sectors in India are you overweight and underweight on, and why?
Banks and NBFCs are in a weak spot while sectors such as FMCG (fast-moving consumer goods), pharma and IT look good.