SAN­JAY MOOKIM

The Economic Times - - Money -

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.

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