GLOBAL IMPACT ON INDIA A BLIP
Jitendra Sriram, Head-Equities, HSBC MF, answers your queries...
Q. Will the global issues take our market back to where we were a year ago?
Sonia Sahni, Mumbai
Jitendra: A worsening of the European issues could cause some temporary corrections in the stock market but a move back to crisis levels of 2008 and early 2009 seems quite unlikely at this point. Governments across the world have stepped in and placed huge amounts of money through easy policies to reinstate confidence.
Q. Just a few weeks ago it looked like everything was returning to normalcy. And now every day we get up to see markets tanking and news about European trouble. Tell me how deep is the European crisis and how soon we can expect it to end? Sunayna Mehra, New Delhi
Jitendra: European economies like Portugal, Ireland, Italy, Greece & Spain do have need money over the next two years. This was of concern to the markets. But the package carved out by the European Central Bank (ECB) & International Monetary Fund have addressed the near term crisis. Also, the recent statements by the ECB of not allowing a Euro member state to default are bound to bring some cheer to markets. However, it looks like fiscal prudence (careful management of money) will take 2-3 years to be implemented and it seems unlikely that the worries will cease completely.
Any India specific impact emerging out of the European crisis should be marginal, if at all. However, flows to developing markets (including India) could be subdued for a while in the face of risk aversion.
Q. I read reports of our markets wilting under concerns from European crisis and problems anticipated in China. Do we really need to worry about China?
Amita Grover, Pune
Jitendra: China is an important economy in the global context and at the margin it is the largest growing consumer of commodities. So any slowdown in China can have impact on the demand-supply dynamics and thereby prices, especially in commodities (steel, non-ferrous metals, coal, etc.).
To summarise, though China’s slow down may not impact India’s economic growth, it can have an impact on investor sentiment towards commodities which are global plays.
Q. Will the global issues take our market back to where we were a year ago? Sonia Sahni, Mumbai
Jitendra: A worsening of the European issues could cause some temporary corrections in the stock market but a move back to crisis levels of 2008 and early 2009 seems quite unlikely at this point. Governments across the world have stepped in and placed huge amounts of money through easy policies to reinstate confidence.
Q: Is it a good time to enter market or are our stocks fairly valued? If I were to buy a portfolio of Sensex stocks today, what kind of returns could I expect? Janet Noronha, Mumbai
Jitendra: I think we need to take a look at the long term and India does have a potential to provide value from that perspective. Global impact on Indian markets is likely to be only a blip, and the domestic consumption scenario may drive growth in India. India still has one of the highest domestic savings rate in the world and the possibilities of that money coming into the capital markets are immense. Also, we are currently at the same PE multiples as the S&P is (meaning our stocks are valued similar to those in S&P index that comprises stocks of larger companies in the US and is seen as a reflection of global market sentiment).
Besides, India has one of the most robust stories across emerging markets based on domestic growth and demographic dividend. We believe corporate earnings (earnings of companies) for the financial year 2011 (FY11) are expected to be over 20% for the Sensex companies.
Q. Indian companies have surprised street with their profit figures. Do you think this will continue in the coming quarters? Vibha Rai, Bangalore
Jitendra: The Indian economy is expected to grow between 8-8.5% for FY11. With such robust growth, we think corporate profitability (profits made by companies) should sustain for subsequent quarters as well, assuming a normal monsoon.
Q: What’s your investment strategy in the current situation? Dahnya, Kochi
Jitendra: At this point of time, we are positive on the domestic India story so sectors exposed to this theme such as infrastructure, banking, consumer discretionary (auto, consumer durables) appeal to us. For reasons mentioned earlier, we are cautious on commodities and we are also cautious towards telecom (aggressive 3G bidding) and real estate.
Q. How are ordinary folks like us behaving in the current scenario? Are they buying, selling or sitting on the sidelines? Mitu Kapoor, Mumbai
Jitendra: I don’t think Indian investor is risk averse on account of global events. Investment levels are appreciably high so as to be close to fully invested levels (95-100%). The focus is on domestic facing plays. One trend that we are noticing in a section of conservative investors is to allocate more money to hybrid schemes such as MIPs (Monthly Income Plans) which are less risky due to the fixed income component in them.
Q. Tell us a little about HSBC Equity fund which you manage and its investment strategy. Would you advise to invest in equities in these turbulent times? Amina Khan, Indore
Jitendra: HSBC Equity Fund is a predominantly large cap equity scheme which primarily has exposure to the largest, liquid, bluechip stocks. As a result, it is a good proxy to the India growth story. It has delivered a year-over-year growth rate of 35.99 % since its inception, compared to 26.83% delivered by its benchmark BSE200 over the same period (as on 30 April 2010). We believe India is a multi-year growth story and one should continue to invest in equities (one of the few asset classes which are likely to beat inflation in the long run) in a staggered manner through SIPs (Systematic Investment Plans).
Q. Which sectors are you positive on in the short (3-6 months) and medium(2-3years)term? Kamya Deshpande, Chennai
Jitendra: On the equity front, we continue to be positive on the India infrastructure theme and the domestic demand story (consumer discretionary driven by demographics, government policies, etc.). Financials is again a space we like as a proxy to both themes from a lending perspective.
Q. Which stocks do you like and think they make for a good investment in the short and medium term? Ritika Verma, New Delhi
Jitendra: As mentioned above, infrastructure, financials, consumer discretionary and pharmaceuticals are sectors we are upbeat about. We are underweight on commodities, telecom and real estate.
