Chief Investment Strategist
Madhusudan Kela, chief investment strategist, Reliance Capital, says that pain from demonetisation is coming down. He sees the situation stabilising by January end. Valuations have corrected a bit in large-cap companies owing to a lot of sell mg by FIIs, he concedes and adds that domestic money coming into stocks will only accelerate going forward. Edited excerpts of an interview:
CNBC-TV18: By when do you think the impact of demonetisation will start to abate?
Madhusudan Kela: The next one-two quarters could still be little tough front an economy perspective but things must start to improve in the second half of this year fundamentally forsure. Whatever the impact of this is, maybe the worst is behind us, as far as the impact of the demonetization is also concerned.
We must start to see some kind of semblance of order in the second half of January once the notes in circulation improve over the next 20-30 days. The impact is already coming down. You can see the queues are coming down in the banks, etc. But the hope is that this situation will get normalised by January end.
CNBC-TV18: Have valuations corrected enough because in many high quality businesses they seem to have corrected. At the aggregate level of the Sensex on Nifty, it may not have corrected that much optically. Do you see valuations having ad justed to this problem or is there absolute downside in prices?
Madhusudan Kela: I think valuations have corrected quite a bit, specifically in large-cap companies, because there has been relentless foreign selling. In the last three months, they have sold Rs25,000 crore.
Most of the foreign selling comes in the large-cap names while domestic institutions have participated and bought an equal amount but there has been a lot of selling through the year and specifically in the last three months. So, I see a lot of valuation comfort, which has come in select names, definitely in the large-cap arena. 1 would not make that same comment with that kind of conviction about the mid-cap segment, specifically thecom-panies which are just getting listed.
I do not understand, market seems to be completely divided. A lot of these companies which are getting listed are tradingat such rich valuation versus very large companies in the same sector being available at much cheaper levels. So, there is definitely a disconnect in the market, but in the large-cap side, you are right, things have corrected quite a bit. And they are looking attractive from an investment perspective.
CNBC-TV18: What is the sense you get when you talk to large domestic investors, high net-worth individuals (HNIs), professional investors, even participants in Reliance Mutual Fund if you happen to interact with them because the reason the market has not crashed completely is because of this domestic money that you spoke about. Do you see that as a comfort, the fact that they are wading through these periods of pain without panic lung or do you see it as a risk, that if this foreign selling continues and results are bad in January', it is possible that even from the domestic side, we might see some selling?
Madhusudan Kela: That does not look to be the case to be honest with you because of two-three reasons. One is that, still you have a $2 trillion economy with 10-11% financial savings. So. you are still talking of $200 billion of financials, leave alone the physical savings we are not talking about. So, when you have that kind of resource to be deployed every year and that is going to rise, where is the ultimate opportunity? Specifically afterthe demonetization, clearly real estate has become challenging.
* As told to CNBC-TV18, Dec 23, 2016