Strong policy reforms from government can push market up: Fullerton Securities

In an interview with ET Now, Rajnish Kumar, Executive Vice President, Fullerton Securities & Wealth Advisors Ltd, talks about the market. Excerpts:


ET Now: Your first reactions to the sub 7% GDP number that we have seen and does it seem like for the next few quarters to come we are going to see an average 7% figure?

Rajnish Kumar: The sub 7% number does not surprise anyone because most of us had already built this into our expectations. So, also if you look at the quarterly results that we have seen for the last quarter which came out, we saw for the first time probably after 2008 profitability for Nifty companies actually shrinking compared to the same quarter last year and this trend seems to be sort of continuing because input costs have been high for most of the companies. Interest rates have been high, so the interest cost have been high, and looks like there will certainly be a margin compression for most of the front line companies going forward as well.

So, sub 7% GDP growth is something which the market has already built into its expectations. What probably we will look out for is what happens in the subsequent quarter in terms of corporate results. Are we going to see further dampening of numbers and further downward pressure and that is something which can then pull the market further down, but what this definitely is doing is that it will limit the upside for the market from the current levels for sure.

ET Now: When we last had you on this show you were pretty bearish on the back of news coming out of Europe. Since then we have seen a massive correction here in India as well. At these levels would you continue to maintain a bearish stance?

Rajnish Kumar: The market seems fairly priced, what I would say. So, unless there is something which happens, something drastic that happens, I do not see the market going down substantially from these levels. Now what could be those potential triggers which can pull the market down further? One of course could be this some bit of comfort that one is drawing from what is happening in Europe in terms of the summit which is going to happen later this week. And some bit of understanding between France and Germany in terms of how to take it from here, all this is giving some positive some comfort to the markets.

If something was to go wrong in terms of the how the discussions in Europe are happening, that can have a negative drag on the market. Other could be a very high inflation number, that something which I am really worried about at this point in time. If inflation numbers continue to look high for India, then we could actually see a sharper correction in the market because then that would mean that we are in for low growth, high inflation kind of a phase with very little remedial action in government’s hands, in the RBI’s hands rather. So that could be a more difficult situation. As of now the market, I do not think, is going to see a very sharp drip.

ET Now: Given the macro as well as the micro data points right now that we are currently working with both domestically as well as globally, what is the downside that you would attach to the equity markets? Could we stare a 10% lower levels on the index?

Rajnish Kumar: From these levels going down 10% can happen, but that can happen only under very dire situations where something really gives in Europe. Otherwise I do not see it falling down so sharply. So something unforeseen happening in Europe can push down to those levels. That is what my reading is as of now. What can probably propel us upwards from here and which is what probably to my mind one of the few things which can still push the market up significantly could be some strong policy reforms from the government, but I am not very sure if that is going to come in a hurry.