ET Now: What is your sense of the market? We have come out of a largely volatile month. There is a bit of consolidation, but June has made up for the losses we have suffered in May. Where do we go from here?
Sandesh Kirkire: The market is a function of what is happening in both global as well as local markets. While we are seeing a reasonably good run, the fundamental issues on the economy still persist. The Indian economy is made up of the sectors which are driven by domestic consumption, domestic investments and overseas services. The issue is with domestic investments and it is impacting not only the capital creation in the economy, but also new job creation. NPL issues have cropped up in the PSU banking system. We are not looking at big-bang things from the government. However, there are issues which are impacting domestic investments. Unless those are resolved, we are not going to see a sustained upward move in the market. ET Now: What you are saying is a black box because we do not know how long-drawn a process is. Do you think there are not enough catalysts to give a bit of a fillip or a bit of a drag to the markets? Do you think we will be in this kind of a range-bound scenario till the time some concrete moves are taken?
Sandesh Kirkire: I guess so. While we saw reasonably good revenue growth as far as the last year is concerned, but for the current year, we will not see similar revenue top line growth. So, there is going to be a pressure on top line which is driven by domestic consumption. We need to create more jobs which lead to further boost to consumption. We are not doing that. That is catching up and which is what we have been seeing in the lower levels in IIP. Global market is further impacting this. The only silver lining is the global commodity prices. We have a large proportion of our imports driven by crude oil. However, on the other side, currency is eating it up. We need to bring in a lot of things locally to improve confidence of the global investors for our currency to stabilise. We have seen almost 25% correction in the currency for the last one year and that is far too severe. It is almost like devaluation where fundamentals have not deteriorated to that extent. I believe that unless these basic issues are resolved, we have issues on basic infrastructure crumbling across the country, we have so many power plants not getting announced, not getting completed. And these are the fundamentals for continuous growth for the economy. So in spite of being perhaps the second largest growing economy, due to the currency front, global investor appetite has declined in India.
ET Now: If I am getting your synopsis correct, you are saying that it will be a flattish kind of a trade unless there are some triggers that happened. Let us work with an assumption that there is nothing happening over the next three to six months and actions get taken only in the election calendar year, what is your base case scenario then you think that we will be slightly higher than where we are at these current levels right now and or would there be a churn in the way the index constituents are performing right now wherein some beaten down names do well and some of the top performing names take a bit of a backseat? What is the base case that you are working with?
Sandesh Kirkire: No, I would say that the market will not get into a rerating till such time that your basics are resolved and which means that it will be somewhere at the current levels unless we really see changes on the fiscal front, changes on the currency front and changes on the policy front. Today the biggest concern is on the currency front. We need to quickly do something on the currency front. While some initiation was done on Monday but it was not adequate. We need to get in more capital from outside. We are a capital-scarce country and that capital scarcity will continue for some more time till such time that the domestic economy revives and let us face it that we are really into, I would say, slow growth. We are not somewhere around most of the analyst expectations of 6% and 6.5% growth for the current year and that is not sufficient for our economy to get out for reducing the poverty in the country. So we have to be in the region of between 8% and 9% growth for us to really stand out in the global markets. 6%-6.5% stand alone number is not adequate for global investors to look at India. That is the reality and the fact is if one-third of your floating stock is owned by global investors, what happens in the global market also impacts us. So the issue is about how do we do multiple things for improving the domestic investment climate.
ET Now: We have talked about the macro a bit. What about the micro within sectors? What is it that you guys at Kotak Mahindra AMC like and you guys are advising clients to completely avoid? I guess infrastructure is something that you would avoid. What else?
Sandesh Kirkire: We would be underweight on, say, PSU banks because we are not yet sure in terms of what kind of NPAs would be there in the system. We would be underweight on the capital good sector. Anything which has led to consumption because within consumption also now some of the stocks have become very expensive because everybody is trying to hide somewhere and the place to hide seems to be in the domestic consumption area because overseas services have become expensive and two overseas services are also linked to what is happening in the global market, which itself is volatile. So from that perspective, the domestic consumption pack itself is being used and hence we have such a massive disparity within an index between consumption and investment kind of sectors/stocks in terms of their valuations. Since everybody is there in the consumption pack, you see valuations going up and that is the big risk that one runs because if that consumption, the top lines of this consumption-driven company starts slowing down, which is a very likely phenomenon because if you are not really adding to jobs, it does not augur very well for the market. The whole process is to find out where to hide. So we are not really in a severe bearish kind of a trend, but clearly there is no great appetite for the market either through overseas investors or through local investors.
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