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(Interview Transcript)
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Mihir Vora of HSBC Asset Management feels markets would be in a consolidation phase for the next few weeks. The markets may not breach the previous lows he affirms.
Vora is surprised by the sharp movement in rupee and rues that the weak currency may lessen portfolio fund flows for a while.
Vora is worried about the impact of inflation on cement companies and not convinced about valuations in real estate sector either.
Shane Oliver of APM Capital Investors said the market may see a short term correction. He feels that the market will see the March lows again but may not breach the March lows.
Oliver said the Sensex may fall about 10% from here and sees this as a buying opportunity.
He sees the conditions to be better next year. The high commodity prices, particularly oil and agriculture commodities are a concern, he said.
Mihir Vora said, “I think inflation is the number one issue in India if not in the world. If you look at the headlines everybody is talking about inflation whether it is on food or on oil. So India to that extent is not really much different from the rest of the world.”
He said the only difference between a developed market and a market like India is that, the marginal propensity to consume is dependant on the incremental proportion of the population coming into the real disposable income space, and inflation is something that tends to slowdown the process of new people coming into the market.
The countries, which are low-income profile countries would tend to be more negatively impacted by inflation. Obviously the government would do something about inflation and this would impact the stock market Vora feels.
On the future of the market
Vora said, “For the next few months we will be in a really boring zone because valuations have corrected quite significantly from the peak and we have not really seen major disappointments in the quarterly results by companies so far. These factors, to some extent will limit the downside in the market and we will definitely not breach the previous lows.”
But on the other hand he feels there are no major, immediate triggers in the market. So in the next few months he said that there’s not much that will drag the market up sharply or take it below its previous lows.
Shane Oliver shares a similar view, he said, “The markets might go through a bit more short-term correction, possibly taking them back towards the March lows. But we probably won’t make new lows. We have seen the low for the bear market, but one will not see weakness in the market for the next couple of months because the news flow out of the US economy may get rough going forward and probably see an earnings downgrade that will put push markets down.
He says the he does see a bit of downside from here but he would be buying into this weakness. He believes that it’s a start of another leg down in the bear markets and that the valuations look okay going forward. He added that in the longer-term, there will just be a correction to the March lows, a retest of the lows and then through the final quarter of the year the may be strong gains in the markets. He is confident that the conditions would be better by the next year.
Further he said that he sees the Sesex falling by 10% and sees this as a good buying opportunity
How will weak rupee impact markets?
Vora said, “I think it should positively impact sectors like IT, pharmaceutical and textiles, which tend to benefit from a weaker currency. A stronger currency can lead to lower inflation in the longer-term.”
“From the international investor’s point of view, a weaker currency is not something that they really appreciate because on one hand you are waiting to make money from the investor portfolio in the local market but from the other end you are losing money on the currency side it is not a very happy situation to be.
So a weaker currency may tend to scare off some amount of portfolio flows from countries like India. So you can have it both ways depending on which way you are on.
Should you reload or stay away from the market for the next couple of weeks?
Vora says “There have been significant opportunities even in this downtrend for example, sectors like IT and FMCG have really done quite well in absolute and relative terms. In the last couple of months the energy-linked pack also has done very well. So there have been large significant opportunities even in this volatile and so called choppy, boring market.”
He added, “Increasingly, it is going to be more and more sector specific, more and more stock specific. So one will have to do active churning and active portfolio management to generate profits. The broad market movements might not look like much one or two months down the line but within stocks and within sectors there will be significant movements and we can try to capture some of those.”
How will Real Estate Steel and Cement fair?
Vora said, “ For cement, we are a little worried about the inflation environment, the regulatory or the taxation and the government approach to fight inflation, which obviously has prevented cement companies from hiking prices beyond a point. Similarly, for steel we have that same concern. So it is a sector, which is really cheap I would say in valuations but there are policy issues or regulatory issues.”
On the real estate sector specifically Vora said “We were and will continue to remain unconvinced about the valuations in some of the large cap stocks, because we believe current valuations still factor in a lot of volume growth and high prices of real estate, both cannot happen at the same time.
Disclosures:
It is safe to assume that my clients & I may have an interest in the stocks/sectors discussed.
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