'Huge money waiting on sidelines for India, waiting for clarity'

This is a dull market and you should just hang in there. The rest of the year will end up being positive, Madhav Dhar, Managing Partner, GTI Capital Group, tells ET Now. 68004247 68003540 67994337 Edited excerpts: What is going on with the market? Do you sense a disconnect between the broader end of the market which is in a bear territory and the Nifty, is just about lurking around in a range? Is elections going to be the next trigger? There are two or three separate big forces under play. One is the direction of the market. The Indian market is doing what the US market is doing which is drifting sideways after a decline and a rise. People are sorting out whether growth is decelerating faster than liquidity is improving and both things are happening. The Fed is on hold and growth is decelerating. The market is trying to sort that out. Similarly, in India, growth was starting to accelerate a little bit and liquidity was tight. Now there is a pause and with the RBI cut, perhaps we are past the worse point of the liquidity crisis as well. We are trying to sort that out. There is a growth liquidity dynamic and political overlay as well. That is why, I think leadership is narrowing. The market is drifting and there is no clear cut direction. But there is an old saying that you never sell a dull market. This is a dull market and you should just sit tight and hang in there. I think the rest of the year will end up being positive both in the US and in India. Time to do homework for whenever that rebound comes in. In the market, there are pockets which are languishing, bleak earnings for various sectors. The pain is being felt in the stocks. Would you not use this opportunity to buy into some of these names?Yes, it depends on the specific names. The outlook for India is steadily improving and obviously there will be greater clarity after the election although I happened to have a view that the election does not really matter at all. But it will buffet the psychology for a few months prior to that. But growth will accelerate. We are past the worse point in liquidity and that is terribly important. IBC, which is probably the single best reform we have had in long time is starting to bite. It is starting to slowly unclog a very clogged system and you cannot get growth going till you get credit creation going and you cannot get credit creation going till you solve the problem of the banking system and the NBFCs. All that is starting to happen. It is not decisive but it is under way. I would say that you can pick your spots but India is in a slightly different cycle and we are accelerating after a sideways movement in the last couple of years of which demonetisation and GST confusion were part of. We are starting to accelerate. What exactly is the outlook when it comes to liquidity flows? What is the sense you are getting from FIIs who have definitely been awfully wary. There has been a tight liquidity squeeze attributed to the NBFC crisis. How do you see things shaping up even after the big event is out of the way? Foreign investors have a huge amount of money on the sidelines for India. A huge amount of money that has been around the block and understands what India can or cannot provide. A lot of it has been disappointed in the last few years. People expected things to be much more market friendly, business friendly, economy friendly and that has not quite happened. Having said that, the underlying trend growth is still 7% and up. There is a lot of money waiting for a little more clarity on politics, little more clarity on the liquidity situation. It is not going to be a broad flood but there are vast amounts of money for specific situations, particularly as a trade with China carries on and intensifies. It is a great opportunity for India to stand out both in terms of market share, and also in terms of the sheer volume of the economy now. I do not think the availability of money is important. Growth acceleration and market friendly environment are going to be important and it is happening in a typically Indian way. IBC is very important. Demonetisation is behind us. But of course you have a little wrinkle with the big tech firms and how they operate here. Money will come in as growth accelerates and India is still very much on people’s radar and everybody wants India to win thoroughly enough and we have to help ourselves a little bit to get that money in.What about individual sectors given what has been going on within the auto space as a whole?I don’t really have a strong view on that. But you may be entering a good zone, again I am talking in terms of 18 months to two years, where you are at a point where liquidity and interest rates are going to go down and improve at the same time, growth is going to accelerate and that tends to be a good environment for interest-sensitive stocks and autos fall into that. I do not really have a very strong view and if I had to take one side, I would take the positive side of that trade. I would say the same thing for a very dangerous area which is housing. You have had a five-six year bear market. There has been tremendous stress in that system and I do not think we are anywhere near any kind of serious acceleration. We are bottoming along on a trough and if the banking system gets a little bit unclogged, rates come down a little bit. You could see a revival from extremely depressed levels. The interest sensitive area broadly is going to get interesting.Do you see the potential when it comes to banks?Banks are interesting and private sector banks have always been the greatest investment in India since the last 30 years that I have followed things closely. I do not see why that changes and one of the things that we do not really reflect on as seriously as is warranted, is that half of the most important sector in a growth economy is state controlled and therefore you create an oligopoly situation for the most important sector where you have very few players.They are very expensive and from that standpoint, as credit growth starts, it is a small group of players that continue to win. It is hard not to like those names and those stocks and especially after corrections and hiccups, it is back to the same names and the same sectors. I feel pretty good about that which is sad in a way because one needs broader credit creation and more private players and greater dissemination and inclusion. The state sector is hamstrung in its efficiency and its inevitable bureaucratic and political meddling. As a patriot, for a lack of a better word, it is frustrating to see that.

from Economic Times http://bit.ly/2Ifgunq

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