Nirmal Jain, chairman of brokerage India Infoline Ltd., comments on the outlook for Indian stocks in an interview with Bloomberg UTV today.
The BSE India Sensitive Index, or Sensex, surged 2.5 percent to 15,900.93 at 2:36 p.m. in Mumbai, set for the biggest gain in two weeks.
The gauge sank 25 percent last year, its second-worst annual decline, on concern a weak rupee, high inflation and record interest-rate increases would compound the effects of Europe’s debt crisis on earnings.
On market outlook:
“I am not pessimistic for the entire year but we have entered into a new year where things are not looking great on the most of the macro-economic fronts that are relevant for the stock market.”
On interest rates:
“The central bank needs to be aggressive in cutting rates and increasing liquidity. The RBI governor has said the right kind of words in the last few days. We need to see how it translates into action.”
On fiscal deficit:
“India is the only country in Asia that has a current account deficit. It’s almost close to 3 percent of the GDP, which is a level that was seen in 1991.
We have a huge dependence on external capital flows and if something goes wrong there then we have serious problems because we have seen the rupee fall and lose almost about 20 percent without any significant trigger.
The government will be under significant pressure to increase their expenditure and spending as elections are coming in 2014 and that would put too much pressure on the fiscal deficit. We are already seeing an increase in government borrowings, they are elbowing out private capital.”
On policy deadlock:
“The government is not able to get any bill through as in the case of the FDI and the Lokpal Bill. This kind of a scenario doesn’t augur well for the market. We have seen this in the past and things can recover. The Indian economy has tremendous resilience and in the worst crisis or when they are pushed to the wall, then things start changing and maybe the government will start acting. The stock market runs ahead of the macro fundamentals. Maybe by the second quarter or the second half we may start seeing things moving positively.”
On outlook for the rupee:
“The currency problem is serious because it has happened all too suddenly. In the last decade, we saw the currency holding out and everybody became optimistic on the rupee and they started saying that on a purchasing power parity basis the rupee may go up to 30 to 35. Most of the borrowers in foreign currency were unhedged and impacted very seriously. You borrowed at 40 and you have to repay at 55. It’s a serious problem and can impact economic growth for two to three years.”