Nandita Parker, Managing Partner, Karma Capital said that the Fed is acknowledging evidence of a moderate slowdown and one should expect this to be the start of a fourth quarter rally for markets. Parkers said that she was positive on markets and that she expects this Fed rate cut to be the start of another rally. “The Fed move acknowledges that the US may be headed for recession,” Parker added.
According to Parker, this rate cut has paved the way for the RBI to cut rates. “Expect a strong earnings season and some cost pressures,” Parker said adding that going forward, the October earnings is important.
Parker said that she would not chase a rally on real estate and that she’d adopt a wait and watch on the auto sector. She, however, sees some value in public sector banks. “Rupee appreciation and wage increases are the two negatives to watch out for. Also oil above USD 80 and early elections are two big risks,” she said.
Excerpts of CNBC-TV18’s exclusive interview with Nandita Parker:
Q: How much more upside to you see given what you have heard from the global markets overnight?
A: It looks like the markets was pricing in a 0.25 point rate cut and the market got a 50-bps rate cut which is clearly a positive surprise. This was very bold move from the Fed and I think the Fed is acknowledging that there’s enough evidence of more than a moderate slow down in the US economy and that the risk are waged towards recession rather than inflation.
I think that by doing so the Fed has been ahead of the curve in recognizing a weakening economy in the possibility of a worsening housing market spilling over to the real economy. So I think that this is very positive move. A lot of people who have been waiting and sitting on the fence, and I mean institutional investors when it comes to investing in India, will probably look for an opening in here. So I’m very positive on the market and I do expect this to be the start of a nice fourth quarter rally.
Q: Do you expect to see a big gush of liquidity flowing it as well. A lot of people said money was going to take call depending on how the Fed moved?
A: I think so and I also think that this paves the way for our own central bank to follow and probably announce a rate cut sometime in October. They may not want to do it right away, but there is enough evidence that the credit growth has slowed down in India, and if that happens then clearly we will see more liquidity here as well.
PAGE_BREAK
Q: What's the big upside? You see a lot of money coming into emerging markets including India now after the Fed move or do you think fundamentally or even in terms of valuations we should be justifying higher levels?
A: I think it looks that way. If you look at it, on its own India was looking like a very solid story and it still does. All eyes are going to be on the October numbers, that’s what we should be looking out for going forward. And If some of the advanced tax numbers are some indications then it looks like there will be a more than a few positive surprises in there.
We are looking for strong earnings season. We are looking for some pressure on the cost side and net-net we are very positive.
Q: One word on the rate sensitives and how you expect things to move from here on for all three categories banks, real estate and the autos?
A: I would not chase a rally right here when it comes to real estate. Autos, we’ll have to wait and see. Banks, clearly there are some values among the public sector banks and we are not doing a whole lot in that area.
Q: What about technology? There’s been a bit of pull back today on hopes that maybe the BFSI space will not go through that kind of wrenching pain that people were expecting earlier. Would you buy this bounce in tech?
A: Tech has been beaten down a lot and I think it was due for a bit of bounce and it remains to be seen whether the Fed is really ahead of the curve in staving off a recession. If that is the case, then there is case to be made for the IT sector.
But lets remember there are two negatives still out there. There is still the rupee appreciation which is a distinctly happening, and also wage increases. So there is still the fear of that.
Q: Just one word on how you would read the global situation right now because a 50-bps cut has surprised people. Most analysts didn’t see it coming. Do you see this as the beginning of an easing cycle and hence the US economy might get away or do you think there is a bigger problem developing globally that we might have to deal with 6-8 months down the line?
A: It’s difficult to say, and clearly, the Fed would not have made the this move had they had a very clear indication that the risk had gone away. So I think that it’s very early to say. By doing this move, they are giving themselves some leeway in terms of what they do in the next meeting. But clearly, the trend in terms of interest rates is down as far as the US is concerned. All the data, when it comes to recession, tends to be backward looking. So we wont really know what happens in the US economy, whether the Fed has been successful for quite a while. I would wait.
Q: Do you see significant upside from here? You spoke about a fourth quarter rally from here, can you see a 7-10% upside for the Indian market?
A: I would like to point out two negatives. I hate to be a party pooper, but oil is above USD 80 a barrel and secondly, there is a risk, a very real one, of early elections in India. So some where in here, we have to look at those too. So having said that, and taking those into consideration, I think that we are in for an exciting fourth quarter.
Nandita Parker's Disclaimer:
It is safe to assume that I & my clients may have an investment interest in the stocks/sectors discussed.
Comments
0 comment