Why Indian markets have a bullish outlook

Apoorva Shah, executive vice president & fund manager (equity), DSP BlackRock Mutual Fund, in conversation with Chandan Kishore Kant says that Indian market is a bull market and the current weakening is merely a correction. Edited excerpts:

In the first half of the current calendar year, some of your investment bets did not help you. What went wrong?

We had a growth oriented outlook. The call played well till December last year. However, we did not change the position along with the changing risk profile.

And we were taken aback by the extent of tightening the government did to squeeze out the fiscal. So, that was a wrong judgment. The value stocks took us down because there was poor growth.

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How are you positioning your portfolios now?

We are now re-positioned and have a portfolio of stocks which could be best positioned to exploit the current scenario - like private banks, automobiles and media.

We are generally bullish on rural growth. We think that next few years will unlock the potential of the wealth created in rural region which has been lying unproductive for long.

What's your call on the current weakening of Indian markets?

It's a bull market and this is a correction, I would say. The Fed is not likely withdrawing the stimulus overnight. It will be in phases.

And if the world economy does not grow they will continue with stimulus. So, if there is low growth, they will continue and else growth will be back. I do not feel it is the end of the story.

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How much should be the index return from a year perspective?

It is possible for the index to go back to its earlier highs which means a return of 15% from here on.  I think investors should start accumulating good stocks. Some stocks are down 40-50%, it's an opportunity.

Can Rupee slip further?

Our country has a large current account deficit (CAD). We have a situation where the external world is not stimulating and printing money as much as in the past.

We have to bring down the deficit. Since it is very large, the only way to bridge it is to let the currency depreciate.

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Considering this, what is your call on the IT sector at a time that when your top IT bet went terribly wrong and you took an immediate "U" turn?

We are positive on the technology sector. It will do well because the US economy is now more resilient (that is the reason they want to withdraw the stimulus). 

The corporate sector in the US is getting a positive signal. Corporates have been witnessing continuous stimulus for last five years with a zero interest rate policy. But now as interest rates start going up in the US, they may start investing.

If they start investing they will also spend on technology, which they had suppressed for the last few years.

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If western markets do well, FIIs tend to start pulling money out from India and other emerging markets. How would scenario change then for India?

As of now, relative attraction of their market is higher than that of our markets. 

However, investors there have generally invested a lot of money in bonds and now when growth is coming back and interest rate is going up, they will rather sell their bonds and buy equities.

So, while some money will move out, the pool of money will grow for equities and therefore we may still continue to get inflows.

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Going forward, how do see growth in India's economy?

We do believe that growth is on the way back. Our macro is improving but the speed of that is going to be slow which is why this current year is the transition year where it is not going to be easy. 

And, we do see that the second half, in comparison with the last year's tight money fiscal, will compare with a normal fiscal spend of this year. The government spending is going to be 30% higher this year over the last year's actual spending.

So once the current fall in the Rupee is abated and withdrawal of stimulus fear are taken care of (which may happen by the end of July), we should see that the markets start pricing in the recovery in growth. Globally, economies are improving so exports will start picking up -- all this will add up to growth.