To discuss the outlook for the market going forward after the sell-off post the IL&FS fallout and the crash in the non-banking financial institutions (NBFC) space, CNBC-TV18 spoke to Sanjay Dutt, director, Quantum Securities; Ananth Narayan, professor at SPJIMR and Mixo Das, Asia Equity Strategist, JP Morgan.
Talking about the mayhem on the Dalal street, Dutt said anything that is stretched at this point of time in terms of valuations is obviously subjected to profit booking and correction, and would be perfect to build short positions, which is what has been happening in the last few days. Dutt is not too worried about what is happening in the market currently.
However, towards the end of today or tomorrow, some amount of buying would emerge in the NBFCs, he said adding that, maybe not in the old names that have been fancied over the last year or like HDFC Bank, Kotak Mahindra etc. but maybe in some other names, which are facing the collateral damage.
According to Dutt, structurally there is nothing wrong with NBFCs for housing finance and financial services story in India from long-term perspective. As a disclosure, Dutt said they do not have any positions in the space.
With regards to Yes Bank, Dutt said, he wouldn’t buy it and would prefer ICICI Bank instead. Meanwhile, the equity markets haven’t factored in a rate hike as of now and would be a negative and shock.
According to Narayan, the statements from the RBI and Sebi give the confidence that they are watching market closely, "We have enough ammunition between debt and mutual fund markets to ensure that things don’t go out of hand."
“Overall, the situation is that we still have a problem on financial stability, on the external sector, on financial services sector with NPAs etc. We need resolutions to happen. Short-term panic, we should be able to manage,” said Narayan.
According to Narayan, rupee level of 73 to the dollar would be defended by the government. There are steps which can be taken with regards to use of reserves as well as oil window to ease pressure on the currency market,
Das said Indian market seems to be caught in cross currents of variety of global developments. However, the biggest risk for India is oil prices and there is likelihood of Brent going to $90 per barrel.
“At current valuations, India is still trading at 18 times forward PE. It is the most expensive market in the region and whilst we do like it from medium-term perspective in light of trade frictions, the near-term outlook is clouded,” said Das.
Overall, the house remains long-term positive on the financial sector, said Das added.
Higher cost of funding is weighing on the NBFCs near-term, but do not expect this situation to last long, Das said.