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Global ripples are being felt in Indian markets: JM Financial
October, 10th 2011

In an interview with Nikunj Dalmia of ET Now, Ashith Kampani, MD-Investment Banking, JM Financial, talks about the Indian and global markets. Excerpts:

At these levels, what exactly are Indian markets pricing in? Too much of fear, virtual breakdown or Indian markets are just pricing in a recession?

I do not think there is a recession because India is a growth story. Looking at the global scenario, one can see that the global ripples are being felt in India, plus there are local problems which are already covering from the political side as well as some policy-related issues are there. If we are able to address the policy-related issues first, that will be a big kick-start.

Also, we have been tackling inflation with interest rate hike. These are the local medicines which are trying to give that food inflation is tackled by interest hike. That is getting too much out of the hand because on that the industry is having big problem because their balance sheets are having big interest burdens. The capex and the borrowings and various other things are coming to bigger problems.

So if there is a policy decision of resting or interest rate hike not going more, at the same time, if we are able to get more inflows, which can come only if we take some policy decisions and kick-start some reforms, get the industry going, then the money will flow in, the rupee will appreciate and we will be slightly better off.

Because on one side, when the crude has come down 10-15%, the rupee has depreciated 10%. So it is getting offsetted. So all these problems can be resolved in a very systematic manner and we need to take those systematic steps in order to reduce our burdens so that the inflation and liquidity do not create any problems.

So the story of how Indian markets have moved in the month of October, what will influence the script -- global factors/commodity prices or local factors like earnings and interest rates?

If you have to look at India, then you will have to look at the Indian companies and when you look at the Indian companies, then you have to look at their earnings. So earnings are governed by the interest component into those particular companies.

So if that interest component goes up, naturally the earnings cannot sustain if there is no growth into those companies. The second point is that when the global flows are flowing and if there are disruption in, say, Greek or Italy or European nature, then those flows do not flow very smoothly and it creates interruptions. So we are in that turbulent time of interruptions.

The moment the European problem is solved/resolved, then the global flow will start flowing back and we will have to watch out for the 23rd of November where the Obama government has asked both the congress, the republicans and the democrats to come with that spend cut deadline date and once that is out, we will be very much clearer how the global flows are flowing. So between now and November that is we are passing Diwali and most of the November we will have a sub-turbulent time and in those turbulent time, we should be picking and choosing the stocks and buying them.

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