"Gains in the bond yields are behind us"
We are seeing signs of growth in key consumer oriented sectors such as two wheelers , passenger cars and consumer durables which are the early indicators of growth.
V Srivatsa, Executive Vice President - Equity Fund Manager, UTI Mutual Fund, talks to Renu Yadav in an e-mail interview, about growth signs of Indian economy in key consumer oriented sectors, NPA crisis and impact of Fed rates on the Indian Market.
1) What are the signs of Indian economy doing well?
We are seeing signs of growth in key consumer oriented sectors such as two wheelers , passenger cars and consumer durables which are the early indicators of growth . Also there is stupendous growth in the air passengers which is also a good indicator . There are signs that business confidence index is picking up and if there is sustained pick up , then private sector capex can revive. The government has also announced various infrastructure projects in roads and railways which again bodes well for the economy. 2) Do you think India is well-placed in terms of inflation and there are no risk of rising inflation in immediate future?
As things stands out today , our food inflation is under control and given the normal monsoon and increase in the acreages , we believe that food inflation can be tamed . Services part of the inflation tends to be sticky and will continue to be in upward trajectory. Risk will arise from fuel inflation as crude prices are inching up and any flare up in the near term can impact the inflation to that extent. 3) Do you think bonds yields will continue to fall? Do you think the market is expecting further rate cuts?
Bonds yields have fallen significantly in the quarter on the anticipation of rate cuts and huge FII flows into debt given the very low interest rates prevalent in the western world and increasing attractiveness of the Indian economy within the emerging economy basket. We believe that there remains scope for one more cut in the next six months and there could be risk to FII flows incase the Fed hike happens by December . We believe most of the gains in the bond yields are behind us .
4) Which are the sectors that are likely to do well in the near future?
We continue to believe in the domestic recovery and are banking on financial , automobiles and cement to drive the growth in the corporate profits and the market. apart from that we are positive on pharma sector as worst is behind the sector and growth should resume from next year onwards.
5) Do you think banks have come out of the NPA crisis or there is more to come?
Large part of the NPA problem has been addressed , there could be one or two more quarters of pain left in the NPA cycle .
6) What are your expectations from the upcoming earning season?
We expect to see strong growth in the consumer oriented sectors such as Automobiles , consumer staples and durables and bumper growth from cement sector . apart from this , the growth in the metals could be very high on a very low base last year. Overall we expect strong earnings growth from both the consumer oriented sector and commodity oriented sector . However global oriented sectors such as Information Technology sector and Pharma have some room for disappointment .
7) Several IPOs have hit the markets and have received good response from investors. With more IPOs coming in future what would be your advice to investors?
Each IPO needs to be invested on its merits and Investors should not get swayed by the grey market premium which drives the demand for the IPO . Investment is a long term commitment and investing for listing gains should be avoided .
8) Do you see Fed cutting rates in December? If Yes, what will the impact on the Indian markets?
Probability of fed rate hike is high in December as recent data points have been positive in USA and most of the targets of the US Fed have been reached . There will be immediate impact in terms of flow especially on the debt side , however this event is well anticipated and we do not expect any big impact on the debt and equity markets.