While the rupee remains in a spot of bother, monsoon outlook is a cause for cheer, says Prateek Agarwalof ASK Investment Manager. During an interaction with ET Now, he made his preference known, saying consumption should hold out well in coming days.
Edited excerpts:
What do you think will be repercussions of crude oil price spike on Indian economy and is it best to completely avoid OMCs, short term if need be?
Over the last 3-4 years, the Indian economy has seen a considerable amount of consolidation. Our fiscal position has improved, inflation is down and current account deficit was at the lowest over the last four years barring the present scenario. Considering health of the economy, it will be able to take some stresses. However, if oil continues to sustain at current levels, it will cause the macros to worsen.
But, for the time being, I believe that the country is in a position to withstand these pressures. There will not be any need for upstreaming or downstreaming the oil companies as there is some amount of cushion. Hence, to my mind, the concern is a bit premature now.
Why do you think that markets are being so resilient when the price actions have been more than satisfactory?
It has caused a bit of surprise at our end as well. We did not expect market to move at 5% in April and believe that it would do well to consolidate for some time. Markets, in the end, look at earnings, which should start getting buoyant from here on. So, it is a one-off which is pulling earnings down.
The India-based businesses are doing well and are expected to do better as we go deeper into the new year.
On the other hand, currency depreciation impacts the market negatively, mostly because of two reasons. First, there is knee-jerk reaction from FIIs as it gives short-term pain to the market. Second, there are inflationary expectations for the domestic economy as it is the domestic flows that for now are making or breaking the market.
While a falling rupee impacts inflation and India-specific businesses, the good outlook on monsoon is expected to address the issue to some extent. Here, it is also crucial to understand that a depreciating rupee is always very good for a lot of global businesses, resulting in a small appreciation in corporate earnings estimate. Given the fact that the market is driving mostly on local money rather than on FII funds, it is probably doing a right thing by being slightly buoyant on earnings rather than dipping.
How should one invest for the next 12 months?
We believe consumption is the space to be in as it benefits from a better monsoon and does not depend mostly on bank funding. In other words, the sector is self funding. Apart from this, the sector is expected to benefit from electoral processes and higher government spending. Thus, our sense is that over the next 12-18 months, consumption should hold out well.
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