ET Now: The big picture is that macro is looking slightly challenging, money is moving out of the markets and crude prices are refusing to come down.

Prasun Gajri: Yes, the macro is clearly challenging and that is what is reflected in the way the rupee has been behaving. So that is a clear indication that any capital inflow or outflow, which happens very quickly, can lead to a large change in the way our macro is positioned. So that has been a problem for a while, it is just getting accentuated.

ET Now: Is it a time now to hunker down all the recovery expectations?

Prasun Gajri: If you are looking at current account that is a challenging problem,, which is not going to go in a hurry. Clearly, one can argue whether it is $80 billion or $90 billion, but we have to fund somewhere to the tune of $80 to $90 billion every year at least for this year and that will require reasonably benign global flows. Therefore, that problem remains.

On the fiscal side, while the intentions from the government do seem to indicate that they want to control the fiscal at 4.8% of GDP, it is going to be a very tough challenge given the slowdown in the economy, the tax numbers for the first two months, little progress on the disinvestment, and food security bill.

Inflation definitely seems to be under control. So that is one big positive which has emerged. Interest rates have not really moved up too much despite the rupee cracking. So that correlation between the rupee falling and interest rates also rising seems to have broken down a little bit over the last few days. Tat is something which is again a positive sign.

ET Now: The argument for Indian equities at least for next one year is not very constructive and given the kind of macros we are working with looks like that we could be in a range for another one year?

Prasun Gajri: We could be in a range for another one year. I do not think there is too much debate about that. For the markets to really move out of the range, something has to happen either positive or extremely negative. So I would agree that the range is there, but having said that what sectors do well and what do not may not necessarily follow what has been happening in the past and that is going to be something which could be different.

We saw some outflows in June, but that was hardly anything compared to the inflows which we have seen this year and in the earlier year as well. So if they sell what they own then clearly some of the stocks which are at very high valuations will not do so well and some of the stocks which are at completely beaten down valuations may sustain. So clearly what outperforms, what underperforms is something which remains to be seen.

The market today is in a complete risk off mode where we continue to give higher multiples to sectors where the fundamentals are clearly deteriorating, but the valuations are higher than what they were 12 months back and there are some other sectors where the fundamentals are clearly weak, but the valuations are just getting beaten up every single day. So clearly that dichotomy may change over the next 12 months, especially if you see FII outflows and ETF outflows from the Indian market that is something which may undergo a change. So the nature of what performs in the market or does not perform in the market could be interesting.

ET Now: Do you expect that Q1 numbers will be rather noisy given the way how the rupee has moved for the quarter gone by, what has happened to bond yields and commodity prices?

Prasun Gajri: See there could have been noise, but the fact is that the rupee movement does not tend to appear in the P&L given the way the accounting is done. It tends to go into the balance sheet, so it does not necessarily make it all that noisy. Having said that, I do not think there are any great expectations from this quarter. Most people anticipate virtually zero to very-very low growth for this quarter. So we are not really building in any major positive surprises. The interest rates have moved, that is something which has been the case for a while. So I do not think that really clouds the things, but overall no major expectations from this quarter.

ET Now: So what could be the next big trigger because you are sounding more bearish than bullish to me?

Prasun Gajri: If I have to talk about the economy it is a more balanced view where we will see probably better growth, but structurally the economy needs to get back to 7-7.5% growth. We will be stuck around 5.5-6% for a while if we do not change that. On the market, clearly the market is bipolar while the valuations may look reasonable from averages perspective, there is a part of the market which is completely trading at the lows post the global financial crisis and there is another part of the market which is trading at all-time highs in terms of valuations.

We are seeing a relative slowdown. Obviously these categories are still doing well, there is a relative slowdown, but do the valuations really justify that? That is something which will remain to be seen and second aspect is if there is actually a sell off in the Indian equity markets from the global investors, I guess the stocks which will be more vulnerable are the high valued stock. So I do not have major expectations from this market. I don't think that it can give me a very high double digit return this year, but you could actually make reasonable returns if you get your sectors right.

ET Now: If you are of the view that one should still be buying into high beta and one should not get obsessed with quality, what are the options which are left?

Prasun Gajri: No, I am not suggesting either of the two strategies. One has to follow a balanced approach. I do not think it is a market which has helped being in high beta very clearly, but having said that it is not a market which is always going to help being in quality. So that is a distinction one will have to start making at some point of time and have that balanced approach to the portfolio.

If you look around, I cannot get into specific names, but there are enough stocks which are trading at post-2008 lows with may be weak fundamentals, but they are not as bad as being made out. So it is a stock-specific market, it is easy decision to be safe today. It is a safe decision from a fund manager's perspective. It is an easier decision, it is very little chance of you going wrong effectively, nobody is really going to question you, but having said that is where I do believe there could be some sense of complacency which could be set in and that gives an opportunity to really look at that from a very different perspective.

ET Now: What do you make of the global mood? One is getting a sense that we are staring at a divided world and emerging market equities are underperforming developed market equities.

Prasun Gajri: The story which has been for a while is a stronger US growth and weaker Europe and probably a little bit better Japan and a weaker China. Now that is something which seems to be driving the global economy at the moment, and at the margin that is something which is going to drive the global asset prices as well. Now the question remains how strong is really the US economy? The indicators we have seen so far do point out that it is coming out from the lows, but how strong does it really get? We are still talking about 2 to 2.5% kind of growth!
The fiscal situation in the US is still nothing great and it remains to be seen if once the QE starts tapering off whether the economy really stays as strong as it is being made out to be or are there repercussions of higher interest rates in the US and the economic growth in the US because we have clearly seen the bond yields and the mortgage rates rise fairly substantial in the US.

The emerging market will still give you between 5 and 7% kind of growth, the fiscal situation in emerging markets is still better than most of the developed world and the opportunities in the emerging markets could still possibly be better than a lot of the developed markets. So while on a cyclical basis, short term basis what you are saying is right, but structurally I do not think the emerging market theme is broken. Yes, there is a slowdown in emerging markets, but clearly if the US actually picks up, the emerging markets also should do well and once that happens you could see the fund flows back to the emerging markets and emerging markets again starting doing well. So it is a fairly linked process. It is difficult to write off the emerging markets so quickly and so soon.

ET Now: Let us look at the local fund flow situation whereas LIC has become a net buyer. What are local insurance firms doing, are you also putting money to work or redemption is still a problem?

Prasun Gajri: The local insurance companies are not necessarily getting the flows at the same pace as they were getting. I do not think their net redemptions are at a very serious level, but I do not think the inflows are very exciting either. LIC seems to have been a big buyer, but clearly LIC was a big seller in the Jan to March quarter when most of us and other private insurance companies were clearly buying. So they had a large amount of accumulated cash which has been put to work now, but overall I do not see too much of fund flows into the equity markets for the domestic institutional investors at that moment.

ET Now: When do you think will be the turning point where retail investors will start pulling money out of fixed income products and they could revisit equities?

Prasun Gajri: Equity market has to do well for a while and sustain itself and get some positive buzz around it for the retail investor to come. See a larger amount of retail investors whosoever have entered in 2007-2008 is a complete dissolution and nothing really to blame the investor because the markets have been like that and therefore it is going to take a little bit of time, markets have to sustain, real interest rates have to become positive. Only then one will see the retail investors being keen on the equity markets. So it could be a little bit longer than one anticipates.

ET Now: Let us look at currency sensitives now. The consensus call is that it is time to buy into pharma, IT, it is time to buy companies which will benefit because of weak rupee. Do you see there is merit in this trade?
Prasun Gajri: Currency is a big beneficiary for sectors like pharma and IT. For pharma it is a bigger positive. For IT it remains to be seen while it is a positive, it clearly allows them a lot of levy, but if you really look at it, the margins of IT companies have actually shrunk over the last 12 to 18 months despite a very significant rupee depreciation.

That tells me that while it is good for their business, a lot of those benefits tend to be spent away either in terms of pricing, or further expansion, or further spending, or further investments in the business and it is not getting reflected in the margins. So while in the short term it is positive, I would be a little bit wary of really putting that into numbers over the longer term. IT companies also depend on how the global macro plays out and how the growth in US really pans out and therefore what is the demand situation for them that is to my mind a much bigger factor and will influence some of these names much more.

ET Now: What is the best way to approach consumers? Again the Street is divided on what exactly it should do when it comes to consumer names?

Prasun Gajri: It is very easy to say get out of consumers but I do not think people would be very happy to get out of consumers because that is a trade which has played over the last two-two and a half years without any problem and it is a fairly easy trade. None of these companies are going to lose you any significant amount of money to be honest. You may get a 5%-10% correction, but there could be a long time correction in these names. So that would be a worry.

If I were to really look at it, two or three things stand out. One is I would be more bullish on the rural sector side of the consumption than urban consumption. So clearly put more money to work on ideas which are more reliant on rural consumption than urban consumption. That is one aspect. Look where the earning growth is still reasonable. So, if the earning growth is still reasonable, if the earning growth is going to be 8% to 10% or 10% to 12% and the valuations are 35-40 times, this clearly does not make sense but if the earning growth is still going to be between 15 and 20%, you might as well play the valuations and stick onto it. So one has to differentiate between the FMCG names, which has not really happened so far.

NEW DELHI: Investors globally pulled out more than $3 billion from equity funds focused on emerging markets including India in a week amid concerns over the US Federal Reserve's plan of curtailing its stimulus drive starting later this year, says a report.

According to funds tracking company EPFR Global, over $3 billion has flown out of emerging markets equity funds during the week ending June 19.

Explaining the outflow, the report said "investors expected the outcome of the US Federal Reserve's latest meeting to be relatively benign".

However, equity funds attracted net inflows to the tune of $4.81 billion during the third week of June.

"While investors are distancing themselves from most of the top tier emerging markets such as China, Brazil, Russia and South Africa, they have retained their appetite for the smaller, riskier, faster growing ones," the report noted.

The US Federal Reserve's decision to curtail its liquidity measures with a goal of ending it in mid-2014 has been weighing on emerging market funds.

The EPFR did not disclose India-specific fund outflow data. But, according to information available with the Securities and Exchange Board of India ( Sebi), the foreign institutional investors (FIIs) pulled out $580 million from the Indian market during the week under review.

Most of emerging market focused equity funds invest in India as FIIs and the capital flows through this route are a key factor in the stock market trends here.

At the country level, Japan equity posted inflows for the straight 21 week, while Germany and Korea also attracted fresh money.

However, equity funds dedicated to China extended their losing run as a report from ratings agency Fitch raised new questions about the country's shadow banking system

MUMBAI: Ahead of the mid-quarter review of monetary policy tomorrow, the State Bank of IndiaBSE 1.31 % (SBI) has said if the apex bank cannot reduce CRR rate, which is a must for lending rate cuts by banks, they should pay interest on cash reserves that banks park with the monetary authority.

Incidentally, most analysts expect the RBI to hold rates during its mid-quarter monetary policy review.

"If a CRR cut cannot be done due to inflation worries, let the RBI pay us interest on CRR. We will then do the transmission for sure. If the RBI pays me Rs 500 crore on interest on my CRR, I promise to transmit the entire Rs 500 crore to borrowers by reducing my base rate," SBIBSE 1.31 % chairman Pratip Chaudhuri told PTI recently.

Last year he had triggered off a heated debate by calling for abolition of CRR. He felt that CRR is "dead money" and it had led to a public spat with K C Chakrabarty, the RBI deputy governor in charge of banking services, who said that if the SBI chairman is not comfortable working under existing regulations, he should look for "some other sector".

Explaining the rationale for SBI's as well as other banks' inability to cut lending rates with minor repo rate cuts that RBI has done by 125 basis points (1.25 per cent) since the middle of the past fiscal, Chaudhuri said, "The relationship between the repurchase rate and the bank lending rate is rather weak. Bank deposits rates are guided by postal deposit rates and not by RBI rates".

Further, he said that a 25 basis points reurchase rate cut will give an additional income of merely Rs 50 crore to the SBI.

"How do I distribute it to my borrowers when my loan book is Rs 7 trillion? Instead, if the RBI reduces CRR by 25 basis points, I get about Rs 3,000 crore. So, if there is a CRR cut, then the transmission is more pronounced," the SBI chairman argued.

Valuations of private sector banks are now slightly getting stretched even though there isn’t a doubt that these institutions have better-managed balance sheets than their public sector counterparts, says Sandeep Bhatia, executive director & head of sales, Kotak Institutional Equities, in an interview to CNBC-TV18. He advised investors to have no exposure to PSU banks.

Speaking on market, Bhatia said the current flow of liquidity from the US will tend to slowdown in the next two years although it will be in abundance in Europe and Japan and India can enjoy some of the benevolence coming from Japan.

Maintaining that both market and outperforming stocks are capped by valuations, Bhatia said there are not many investors on the street who would place their bets on cheaper stocks. He is doubtful of an improvement in India’s macro situation but remains bullish on the pharma sector .

Below is the verbatim transcript of his interview on CNBC-TV18

Q: What is the mood on banking right now because this quarter has been so disparate in terms of earnings good earnings from private sector but not so good from public sector banks?

A: Yes that is true. The balance sheets of the public sector are showing signs of strain. Our belief is that if the economy does not improve in the next 18 months there would be further strain on the balance sheets of the public sector banks.

The private sector banks have carved themselves a very good niche. They are focused on the retail side of the asset much more. Their balance sheet management and working processes are much more stringent. So, clearly we see less stress on the balance sheets there but valuations are getting stretched on the private sector banks. This differentiation between private sector and public sector will run for some more time but it will be clearly stretched valuation for private sector banks which have to be watched for.

Q: How are you mapping the whole infra space now, which is connected to the banking world very closely. Are you seeing any signs of recovery because company earnings have been quite weak almost without exception over the last four-five days?

A: For a long time we have been saying that we do not see a quick recovery in infrastructure space. Their balance sheets are stretched, execution is still not happening, so clearly there are issues which will not go away soon. There needs to be a significant change in policy confidence, which is not going to come in a hurry. Therefore, the public sector banks will bear the brunt of this and which is why the markets have been differentiating between public sector and private sector banks.

There doesn’t seem to be a quick way out of the woods for infrastructure, and the public sector banks exposure to these companies.

MUMBAI: Markets have corrected sharply on concerns about a halt in quantitative easing in the US, which spooked investors. China's flash HSBC Purchasing Managers' Index for May, which fell to 49.6, for the first since October also led to a global sell-off.

Reacting to the meltdown in global equities, Finance Minister P Chidambaram said that the US Federal Reserve Chairman's statement has been misunderstood by the market. He said that foreign inflows into India in May have been copious and there is no need for investors to be nervous.

According to him, WPI inflation has come down below 5 per cent and investors should look forward to next quarter with greater confidence.

According to analysts, the current correction in Indian markets is on account of profit booking after the recent sharp rally and bearish sentiment in global markets. Fundamentally, there is no strong reason why the investors would exit the Indian equities at a time when the interest rates are expected to go down. They don't expect heavy outflows from the FIIs but some moderation in inflows is not ruled out if the US markets continue to move higher.

"This fall is like a blessing as we feel the Nifty will bottom out by roughly correcting 1-1.5 per cent and then stage a rally all the way to 6,400-6,500 in next 5 - 6 months. Best sectors to go long at the time of recovery would be banks, metals, capital goods and cement," said Manoj Muralidharan, AVP- Derivatives, IIFL PReMIA.

At 01:40 p.m., the S&P BSE Sensex was at 19,753.12, down 309.12 points or 1.54 per cent. It touched an intraday low of 19,697.44 and a high of 20,027.56.

The S&P BSE Midcap Index was down 1.85 per cent and the S&P BSE Smallcap Index fell 1.90 per cent.

Standard & Poor's reiterated its negative rating outlook on India's credit rating, which is one notch above junk status, warning of risks if the government carries out less reform than the agency says is needed to boost growth.

The rating agency, which warned of at least a one-in-three chance of a downgrade within the next 12 months, said the major risks for a lower rating are a high fiscal deficit and heavy government borrowing.

India's benchmark 10-year yield rose 4 basis points to 7.41 percent from levels before the statement. The yield closed at 7.39 percent on Thursday.

"If India's general government fiscal or current account deficits worsen contrary to our expectations, we may lower the ratings," S&P said in a release on Friday, after affirming India's BBB- rating with a negative outlook.

Finance Minister P Chidambaram has said he will stick to a budgeted fiscal deficit target of 4.8 percent of GDP in the fiscal year ending March 2014 after being able to restrict the deficit to around 5 percent in the previous fiscal year.

"We may revise the outlook to stable if the government carries through with its plans to unleash public and private investments (for example, by enacting the land acquisition bill), to implement a nationwide government sales tax, or to further trim fuel and fertilizer subsidies," S&P said.

India's growth slipped to a decade low of 5 percent in the fiscal year that ended in March 2013 after posting nearly double digit growth in 2008. Recent corruption scandals have prevented the government from passing key reform bills in the parliament.

NEW DELHI: Indian markets are likely to trade in a range with a positive bias on Wednesday. The immediate support level for Nifty is around 5981.

"The Nifty is expected to head higher till 6080. In this period the key support will be at around 5981 and resistance will be at 6050," said Somil Mehta, Senior Tech Analyst (Equity) at Sharekhan.

"The Nifty has closed above the 78.6% retracement level (5971; that is the 78.6% retracement of the fall from 6111 to 5477), which was a very crucial resistance," he added.

Mehta is of the view that the short term bias for the Nifty remains positive for a target of 6111 with reversal around 5925. The medium-term outlook also remains positive with reversal around the 20-daily moving average (DMA).

Here is a list of thirteen stocks which are likely to remain in focus in morning trade:

HDFC Ltd will be in focus ahead of its quarterly results. It is expected to report net profit of Rs 1515 cr for the quarter ended March 2013 up 14.2 per cent YoY, as compared to Rs 1326.10 crore reported in the year ago period, according to ET Now estimates.

Glenmark Pharmaceuticals Ltd BSE 1.80 %, after the company posted 10.93 per cent rise in consolidated net profit at Rs 166.79 crore for the fourth quarter ended March 31, 2013, on the back of robust sales in both international and domestic markets.

Shriram Transport Finance Ltd, after the non-banking finance company reported a 16.63 per cent rise in consolidated net profit at Rs 383.46 crore for the fourth quarter ended March 31, 2013, driven by a sound rise in loan growth.

Ceat Ltd BSE 4.93 %, after the tyre maker reported 32.83 per cent increase in consolidated net profit at Rs 64.90 crore for the fourth quarter ended March 31, 2013.

Ranbaxy Laboratories Ltd will be in focus ahead of its quarterly results. The pharma major is expected to report a net profit of Rs 163 cr for the quarter ended March 2013, as compared to Rs 1247 cr reported in the year ago period.

Reliance Industries Ltd, after the government has asked for certain clarifications from RILBSE 0.10 % on the revised investment plan the company had submitted for the main gas producing fields in the eastern offshore KG-D6 block.

NMDC Ltd BSE 0.15 %, after state-owned company is now examining two proposals for acquiring coal mines in the African country.

Infosys Ltd, after country's second largest software firm, said it has partnered with enterprise solutions provider SAP for developing mobile applications for the retail industry.

Wipro Ltd BSE 0.26 %, after the software exporter said it is investing $ 30 million for a minority stake in New Jersey headquartered big data analytics firm, Opera Solutions.

GlaxoSmithKline Pharmaceuticals BSE 1.75 %, after the pharma major reported a 37.52 per cent rise in its net profit to Rs 169.01 crore for the first quarter ended March 31, 2013 from the same period previous fiscal.

Axis Bank Ltd BSE -0.58 %, after the private sector lender will replace state-run Bank of India (BoI) as the trustee bank for the National Pension System (NPS) from July onwards.

UCO Bank BSE -4.08 %, after the bank reported nearly 80 per cent slide in its net profit figure to Rs 50 crore for the quarter ended March 31, 2013. Provisioning increased by 114 per cent to Rs 977 crore (Rs 456 crore).

Dewan Housing Finance Ltd (DHFL), after the company recorded over two-fold jump in net profit at Rs 196.93 crore for the fourth quarter ended 31 March 2013.