Until that event happens, it is only the growth in consumption that is going to drive economic activity in the country. This whole expectation that India will recover in the next six months, capex will start happening is a bit farfetched.
There could be one rate cut by March and we don’t think the RBI is going to be more aggressive as we think CPI is going to go back up. Given the stance of the RBI over the last few months, we don’t see them going aggressive on the rate cuts. In PSU bank space, it is not only NPAs, even Basel III regulations are also an issue. Capital ratio has to go up. They will have to go from RBIs strict norms to default provisioning which will tend to increase their provisioning cost. India has always got premium to emerging markets only because of visibility in consumption. Historically our earnings growth is not higher or lower than EMs. It’s always on the same rate. What we get is a visibility premium rather than a growth premium. Right now it is at historical high. Consumption is the only game at the moment, but right now the risk is extremely expensive. One should not add risk at this moment. Fair value of market is lower, given where earnings expectations are and what rational multiples should be.
But can the market go up? Yes it can, as it is coupled to any emerging market tide. Our global strategists are extremely positive on emerging markets, there view is inflation globally is going to remain low for a very long time and in that environment the rerating of emerging markets is not yet done. These are extremely tricky things to predict. We have a level of 30,000 on the Sensex for December 2018. There will be nothing domestic that will cause the markets to correct, it could be external only.