After a rather disappointing week, equities opened this morning on a strong note, showing no signs of a risk-off trade today. The day started off with a strong gap up opening, but there was still no sign of profit booking coming in. Strong European markets also aided the market’s upmove today. At close, the Nifty had gained 66 points to 5,282 . The index has surged as high as 5,293 today, but statements from Spain and Italy set it back a little. Meanwhile, the Sensex gained 163 points to 17,391.
The past few weeks have not been very conducive for equities, but yet the indices have held strong, unwilling to let go of gains. Last week, central banks from around the world, even the Reserve Bank of India, held back from moving on interest rates or stimulus measures, dashing hopes on markets. However, we started today on a positive note, which is a good sign for now.
The key question going forward now is whether this buoyancy will survive.
According to portfolio manager PN Vijay, there are a few factors in play which could extend this rally by a few days. Speaking to CNBC-TV18, he says that surplus liquidity in global markets will make its way into India, which will benefit our market. He further adds that there could be some action on the reforms front with P Chidambaram heading the finance portfolio.
“I’ve been told that we should expect one move a day for the next 15 days, so little earthquakes will come that will keep the punters happy. On the whole, it was started by a global rally, but there might be some meat in India to keep it going,” he said.
Below is an edited transcript of his interview with Udayan Mukherjee and Sonia Shenoy.
Q: Are you expecting this market momentum to continue, not just in our own market but globally as well?
A: It might continue for a couple of more days for one or two reasons. Firstly, we are part of a global trend. In the last one month or so, European markets have rallied about 10% and more than 2% on Friday. But in July, it was down by almost 1%. So we are still laggards in the global markets. If there is a general risk preference wave going through, driven by surplus liquidity and very low interest rates, India should get some share of it.
The other is that one is expecting some sort of de-bottlenecking of the Indian economy by Chidambaram and company. We have put so much of self goals on ourselves the last six months that we should de-bottleneck some of the issues on supplies side, on taxes, etc. I am told that one should expect one move a day for the next 15 days, so little earthquakes will come that will keep the punters happy. So on the whole, it was started by a global rally and so there might be some meat in India to keep it going.
Q: How much can the technicals push this market against fundamental headwinds?
A: One thing with crude is that it unpredictable. If crude goes through the roof, then we will have problems with the rupee-dollar, trade deficit, inflation etc. So if crude shoots up, then we have a very big issue.
We have discounted the monsoon already. The ability of the monsoon to bring down the Indian market is now very limited. It may not be as big as the drought of 2009, but it will create problems for agriculture production. So the bottomline where I am coming from is monsoon is discounted, but probably not a sharp increase in Brent.
Q: The finance minister said that he wants to remove the apprehension that investors have with respect to the economy . Are you expecting anything to fructify at all?
A: There is some amount of politics in the economics. Getting investor confidence back can be split into two blocks; one is the politically painful reforms like the blockbuster foreign investment in retail, Rs 5 increase in diesel etc. The other one is improving supply side management that can improve tax administration and making it more investor friendly.
We seem to be under the impression that we need big things to be done in India to get the industrial production numbers up. But it doesn’t take too much. All that it needs is to improve the power situation, have proper agreement with the State Electricity Boards, pass on tariffs and then improve coal supply, improve logistics. These are all things a good well run government can do. Because of whatever political issues they have, they cannot do the big bang stuff, they would continue to do some of the smaller things which can make a difference in GDP.
Q: Do you think the worst is over for something like an SKS Micro ?
A: Yes, I think the worst is over because of the fact that the Reserve Bank has to some extent changed the rules of the game in favor of micro finance companies. I think these companies went through a very chaotic and crisis driven period.
SKS has been on and off the cliff, so there could be a game changing that’s happening in micro finance companies and to that extent SKS might benefit. The fact that it’s removing the Andhra focus from its business also is good.
But I don’t know whether you should be buying because this market could get lot of very good picks in midcap IT, midcap pharma, midcap this that, etc so many buying opportunities without that type of risk but surely the game has changed in favor of SKS Micro.
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