"Broadly we are at a time where the risk return is significantly in your favour if you go long on the stocks because the rupee market despite the turbulence that one has seen is at a level where you will see stability coming soon," he said.
He adds that G-Sec yields will stabalise at about 8.5 percent and rupee at about 60-61 level. He does not see mass exodus of foreign institutional investors (FII) unless there is downgrade by international credit rating agency.
Did you read?: RBI takes further step to stem rupee's slide against USD
Nadkarni further added that private sectors banks, which were once regarded as safe heaven will continue to be in pain for one more quarter. "With the rates holding up high now and the need to book treasury losses on mark-to-market losses one more quarter of pain in the private sector banks is still left," he stressed.
In terms of corporate earnings he does not see any improvement going forward due to near standstill industrial growth. However he believes that Fast-moving consumer goods (FMCG), pharma companies and IT companies will now be relative safe havens as far as the results are concerned.
Below is the verbatim transcript of the interview
Q: So far we haven't seen any major pullout by foreign institutional investors (FIIs) but after you looked at last weeks trend it seems like FIIs are losing their patience now in some of the key sectors that were over owned names in the IT space, FMCG, etc. How are you positioned on the flow situation from hereon, do you expect to see any kind of mass exodus by FIIs soon or do you just believe that there could be some churning here and there?
A: I don't think there will be a mass exodus unless there is a downgrade by the international credit rating agencies in which case all bets are off. However, at this stage we are seeing a tired market where the Reserve Bank of India (RBI) for last two years had played a tight money policy and over the last three or four quarters they have kind of eased that policy.
The havoc in the markets was essentially caused by the FII pullout from the bond market and that amount was quite large, which we had not seen before. That in turn played an impact on the currency and consequently on the sentiment in the stock market.
There is no denying the fact that the ground reality for industrial production, factories, businesses in India is quite dismal at this stage. There are problems with infrastructure these are amply reflected in the Index of Industrial Production (IIP) numbers.
The quarterly results of companies that one is seeing right now is also to a certain extent the reflection of this prolonged period of weakness that one has seen for the last nearly 18-24 months. Having said that most stocks other than the major index stocks have seen erosion in values between 50-70 percent in a large number of midcaps and what was essentially therefore holding up the market was a flight to safety in FMCG and pharma stocks.
There are a lot of redemption pressures on mutual funds even now. As the liquidity has dried up in a lot of midcap counters are under stress due to redemption pressures and also on FIIs sellout. In such scenario you would need to end up selling the stocks that are most liquid; and that is what one has seen in the last two to three days where some of the good stocks have seen some erosion in their values.
I would think that we are now at a level where the RBI has taken certain measures and the government is taking measures to improve sentiment and induce foreign flow into the country.
Broadly we are at a time where the risk return is significantly in your favour if you go long on the stocks because the rupee market despite the turbulence that one has seen is at a level where you will see stability coming soon. I don't think the rupee will fall significantly from here and we will also see G-Sec yields of about 8.5 percent.
We have seen some reversal of FII flows, some money coming in into the country with NRI remittances and other things. So, you will see interest rates stabilising at about 8.5 percent in terms of G-Sec yields and rupee at about 60-61 levels will kind of stabilise and you will see the markets also kind of bottoming out at this level. So, I am not so negative on the markets, the ground reality is difficult but the markets are in a level where the risk return is significantly in your favour for buy trade.
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