English
New Delhi, June 7: Ridham Desai, Managing Director of Morgan Stanley India, in an exclusive interview with Anil Singhvi, Managing Editor of Zee Business, shared his views about the Indian market and the reason that is making foreign investors reduce their India exposure.
Desai spoke with Zee Business on the sidelines of the Morgan Stanley Investor Summit on Tuesday.
Edited Excerpts of the interview
Q: What is special in today’s conference?
A: Interest in India remains intact, but the foreign investors are reducing their India exposure due to the growth story of the country in previous three years, which has flattened, especially when compared to emerging markets. The growth story of other emerging markets has been turned back but not in India. They, the foreign investors, are disappointed by India’s lack of growth.
Q: My first question is that, is this mood of the foreign institutional investors (FII), as described by you, temporary or is it here to stay for a long time? Will it change after the election?
A: It has been running from past few months i.e., this is not a new story, and if you see towards other emerging markets then you will find that their growth cycle was good in past 2 years, but this was not a case in India. Domestic factors like GST and demonetisation puts a brake on the growth story of the country. In short, domestic factors pulled down India’s growth story when compared to other emerging markets.
Q: Growth numbers of this quarter were little better. Will it be able to make a difference or change the mood of FIIs?
A: See, it has not improved till date, because they have witnessed consistent disappointment from the market. I think the results of one quarter will not be able to have an impact on their mood. Similar results of 2-3 more quarters may bring a change. Because they have witnessed growth problem for continuous 3-4 years, thus a single quarter will not make any difference in their mood. Secondly, you were saying that growth has returned but I think it is not back completely.
Q: This means that the FIIs will return to Indian market after elections?
A: It’s not necessary. Election can be one reason. High fuel prices, which have an impact on the macro economy of the country, is also one of many reasons. In fact, there are many reasons and that’s why I don’t think that there is a need to stay until the elections. They, the foreigners, may return, if the prices of the shares fell from here. But there is a matter of fact that the domestic investors are investing in the market and I feel that they are not going to stop. There is a condition in the market, where people are also buying the shares when they are being sold.
Q: So, the big question at this point is that, is the market going to be bound range and will be trading in small range or will break due to the sale of FIIs or will the domestic funds support the market? Sir let us know about the direction of the market?
A: I think the market is going to be range bound. In fact, this is an election season and the market fears that the next government may have an absolute majority. I feel the market will not grow further until the pricing is not done. But there is a difference if you see at the market in last three years than you will find that there was less volatility in the market, but it seems that going forward from here the volatility may go up.
Q: It means that we should be ready to adjust to the fluctuations of the market. At the same time, I would like to point towards certain good things that have happened in these years like a good monsoon for continuous three years and hopes are there that the monsoons will remain same this year too. Secondly, earnings of the companies have also improved. Will these factors benefit the market?
A: Lot of things have improved. I would like to point towards 2-3 big things like infrastructural investment, DBT and Bankruptcy law among others. This year’s infrastructural investment is going to be all-time high investment in the sector. Secondly, Aadhaar linked Direct Benefit Transfer (DBT) is one of the biggest successes of the government. In fact, about 2 lakh crore has been transferred directly to the account of the beneficiaries in past 12 months and it seems that it will increase to 3 lakh crores in next 12 months. Under Bankruptcy law, the cases are being resolved by NCLT at a fast pace.
Q: At the time, when you are cautious about the market and saying that it is going to be a bound range, I would like to know about the pockets/shares in the market that is too expensive but will fall when the market weakens.
A: We are underweighted in consumer staples as well as the pharmaceuticals sectors. At the same time, I think turnaround has started in the corporate banks. The recent pace in the industrials shows that private Capex is returning. There is a demand in discretionary consumption like auto stocks and my view for the sector is, the earnings in the sector is going to be fine.
Q: Does this mean that there is no problem in the shares related to consumption sector associated with Indian economy and traders/investors can invest here?
A: Yes. But you will have to keep valuations in mind while investing in the sector because a lot of valuations may not make money even if the company is performing well.
Q: There has been a problem in mid-caps and small-caps of the Indian market, many stocks have seen a sharp fall. Do you think a correction was needed in this segment as they turned up to be expensive?
A: I think, it is a correction of last year’s pace. Last year, the segment saw a growth of up to 60 per cent and saw a fall of 15-20 per cent this year and this was a result of correction. Such corrections break the psychology of investors and take time to revive itself.
Q: Generally, your research team has a practice of setting its own targets for next 1-2 years at Nifty. Then what is the target of your research this time?
A: For the next June we have a figure of 36,000 on the Sensex. But, earlier in my forecast I said that there is a huge range under which the market can climb or crawl down by 20 per cent because of the existing election atmosphere as well as uncertainty in oil prices.
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