Stay away from markets, rally not backed by fundamentals: KR Bharat
According to the new plan, Rs 21,000 crore of working capital loans from 26 banks are being converted into long term loans of 10 to 15 years.
Indian markets have surged sharply this year and most analysts have been taken by surprise. Retail investors have missed the rally, never getting a chance to buy as stock prices rose at a frenetic pace.
KR Bharat of Advent Advisory Services had advised investors to hold on to cash in an interview with NDTV Profit in November. And despite the strong rally, he maintains that the time has not come to invest in equities.
The bearishness was not borne out of what was going on in markets. The view on global and domestic economic fundamentals and had led to bearish views. Nothing much has changed from fundamental macroeconomic perspective. The markets have gone up purely on liquidity, Bharat told NDTV Profit today.
“There is a lot of carry trades going on... lots of liquidity has been generated globally and lot of money has found its way into India,” he added.
Edited excerpts:
So, why markets are up 20% in India?
It is because people are generally feeling more positive around the globe that steps are being taken whether in Europe or in India and secondly because of the liquidly factor. But on the ground, little has changed. The US has shown signs that the worse is over. Post elections, a lot more positive announcement are likely to be made. So, I don’t see 2012 to be a bad year because of technical factors but economically nothing has changed.
What has changed?
The one big positive is at least there have been some statements from the government, particularly from the PMO that you could have a crisis situation in the power sector if something is not done... Some other statements have been on the disinvestment front, which lead to believe that some money will be raised through that route. Also, inflation numbers have been coming down.
What's the worry?
The markets will correct from these levels in the next couple of months because of the following factors.
a) If oil prices continue to move up
b) Inflation takes a couple of more months to correct
c) The euro crisis does not resolve, and
d) Absence of concrete evidence of aggressive economic reforms implementations
When we get clarity over these four issues…that would be the time to buy stocks.
Inflation will take more time to cool off:
Food prices have come down largely because of the large base effect. If food prices do not move either up or down in February…then the stated inflation number in February would be higher than in January.
New bull market:
The market is discounting the fact that the government is going to take a lot of pro-reform measures in the next 3-months. There is a lot of expectation that post this round of sort of mini elections, economic reforms are going to be aggressively taken. If that happens, all room for pessimism is gone and we are looking at a new cyclical bull market for India.
If it does not happen, 6.5-7% GDP growth is here to stay and fiscal and currency deficit problems would continue. So, when economic reform measures are aggressively implemented that's the time to buy into the markets.
Interest rate cut in next fiscal:
Rate cuts will happen. But that will start in the first quarter of the next financial year because the assumption that the correction in inflation cycle is here to stay will be belied by the February and March numbers.
Ideas:
a) Avoid companies with managements that have led you down in the past because they may let you down again.
b) Look at companies with positive cash flow.