'H1 2013 to be supported by liquidity inflows'
With 2012 clocking one of the best returns for Indian equities market biggies are hoping on more reforms from the finance ministry which is reloaded with Mr. P Chidambaram and is hoping for a budget that will find fine balance between growth and fiscal balance. Zee Business Bureau Chief Mihir Bhatt
caught up with Edelweiss Chairman Rashesh Shah
in his sprawling office as he prepares his strategy for 2013. 2012 was bit of a roller coaster ride for markets but index has delivered one of the best emerging market returns, what are you expecting from 2013?
I feel overall 2013 will be a good year for Indian markets. Though expectations are running high but first half of calendar year will be supported by good liquidity inflows thanks to Fiscal Cliff getting out of the way. Also the new found pace of reforms on the government side will keep the momentum high for markets. But I would be more sceptical about second half of 2013, We need to see some real changes like exports picking up, Capex cycle turning around, Inflation coming down. If this happens then the momentum could well stretch in to the second half of this year. We did see some gap between real economy & markets in 2012, can we hope real economy will catch up with markets in 2013?
I think global factors will come in to play for this. Especially how global interest rates behave that will matter for India too. We are on the brink of a rate cut cycle.It is important that global rate cycle stays soft. I think the way Indian investor should position himself for markets right now is to focus on first half of 2013. Play it and then take a view on second half depending on the revival in real economy indicators. So far we have seen Indian retailer warming up to asset class like Gold & Real Estate. But if this beginning of a sustainable rally in markets then is this the right time for them to enter markets?
We have seen some revival in interest with markets crossing 6000 levels. Recent listings like CARE have done well. If reasonable priced IPO’s keep coming at regular intervals it will boost retail sentiment. In last 4 months on average we have seen that gold has underperformed equities. I feel going forward some investment from gold will be diverted to equities. If interest rates start coming down same thing will happen in fixed asset classes too. I expect good participation from retail side by Feb – March if inflation and interest rates start sliding down. If we have to take a sector-wise view which will be good destination right now for retail money to go?
I think banks are best positioned for any new inflow to go. They are heavyweight on the index also and with rate cut cycle about to start they will continue to outperform. Even consumption stories are looking good backed by economic revival but we have to be careful about which companies we choose in this space. The impending new banking licenses will also add fuel to the fire in banking stocks?
In the near term I think it will play as a trigger but the real effect on banking system in India will be visible only in 2-3 years time. Are you comfortable with projections of fiscal deficit considering that one tool of cash generation was thru auctions where govt has failed while disinvestment as of now looks fine thanks to OFS route?
While 5.3 % fiscal deficit doesn’t look impossible but govt needs to keep confidence levels of rating agencies and global fund managers high. And you are right what govt. has achieved thru OFS has been neutralised by lower then expected response to auctions. That is something finmin will closely watch. What are you expecting from this budget since this is the final budget from PC before govt goes in to election mode?
I think market is expecting a populist budget and I will go with that view. But there are several threats to the India story even now and that makes me believe that govt will not act irresponsibly in preparing populist budget. What we will get will be a balancing act between investment and fund raising on the part of the govt. If finance minister manages to do this, it will surprise the market positively. What is your expectation on the reforms front, since market is making noise about reforms continuing in budget session too?
Budget session or not but next set reforms will have direct impact on financial space. I think govt. will take up reforms in pension funds, insurance etc. Also the cabinet committee on investment is a big trigger in itself on markets when it starts delivering. As far as corporate performance is concerned we have seen divergence. On one hand we have consumption driven stories like ITC or Lever which have done well, on other hand we have investment driven sectors like Capital Goods & Power which have struggled. Will this divergence continue?
We can hope for the gap to narrow down between consumption and investment cycles in 2013 but I still feel that consumption will be slightly higher than investments in 2013. But in that case when will we see revival in sectors linked to core economy?
I think the answer lies in the capex cycle. I am hoping that as the capex cycle revives the growth in these giant sectors will start showing. That will be the time when wheels will start moving. We have already seen good revival in real estate. This will augur well for cement companies. With interest rates cut to begin , we may see revival in capex cycle as well. Also what will matter is how soon infrastructure projects which have been stuck are cleared. But then people are riding in to markets at this point with almost 25% return on the index in 2012? Can 2013 deliver similar return?
I think we should ride in to markets right now with expectation of about 10-15% return. If we can achieve this in first half and then observe macro indicators for second half of 2013 that will be a safe strategy. Now as we sum up, what’s your view on global macro set up right now?
I think with fiscal cliff out of the way US will play important role for global fund flow. But the revival we have seen in US Real economy has to continue because it will have impact on global liquidity and interest rates too. But for EUROZONE it’s long battle and I think their growth will remain under pressure for sometime to come. For the next fiscal what kind GDP expectation you have?
I think 6.5 % GDP and inflation closer to that levels if not below will be ideal scenario. As far as edelweiss is concerned, what’s your strategy for next fiscal ?
I think we are focussed on growth in credit business. I want to stabilize housing finance business too apart from Insurance sector where we are expecting growth. Over all if I have to sum up my strategy , 2 key words will be efficiency & productivity improvement. You have large bet on insurance?
Last 3-4 years have been bad for this industry. We have 40 branches all over India and in 2013 we will open another 40 odd branches. I hope industry will start stabilizing soon. What’s your advise to investors in 2013?
Don’t have high expectation, watch for structural improvement in sectors and then companies. Inflation & Interest are going to be our catalyst for the New Year. If rupee appreciates it will be good watch for it.