Roop Karnani is a Senior Journalist, Author and Industry Analyst
The markets are moving into a semi-euphoric zone. Caution is the name of the game. And RBI is treading with caution. Dr. Rajan is playing a wait and watch game, and may continue to hold rates for the entire fiscal 2014-15, in order to see what the new government does.
The best thing that UPA2 has done is that they brought in a young and mature central banker like Dr. Rajan, who is not just slowly and cautiously moving ahead with small steps, but also has a 3 year term, even if UPA doesn’t come to power. Last week he granted 2 banking licenses – one to an urban NBFC like IDFC, and another to Bandhan, which is a solid microfinance company. The rural and even the urban poor are more comfortable with microfinance banks, while the rich and corporates are more comfortable with the likes of IDFC.
India Post is another entity RBI is considering giving a license to, but it probably wants a definitive image makeover of India Post. Its advantage is its tremendous reach, but widely viewed as inefficient. Image makeover does not mean a mere change of logo, but maybe a public listing to bring it under the ambit of SEBI. Dr. Rajan said that he would discuss with the government of the day and then take a decision on India Post. He also wants technology to play a key role in new banks. Rest assured that within a year we will have 8 to 10 new bank licenses given in tranches and new bank licenses will remain on top. One of the key roles that Governor Rajan has set for himself is to keep an eye on a stable exchange rate, within a narrow band. I doubt that he will allow it to go back to Rs. 55 to the dollar. He will allow it to move in a narrow band of 59 to 61 and later as the new government settles down, he will allow it to depreciate to Rs. 63 to a dollar level. As far as exports are concerned, India is in a sweet spot. China, the largest exporter is struggling with massive inventories, internal problems and has been slapped with anti-dumping duties in several developed countries.
This is the best chance for India to step up exports, whether it is pharma, IT, steel, automobiles or gems & jewellery. In case of gems & jewellery, the RBI is planning to bring down import duties in a calibrated manner, only for those companies like Titan, TBZ, which will show matching exports, because they have capacities, can value add and have the capacity to build distribution channels abroad. This will also bring down smuggling of gold, which some estimates say, has already reached Rs. 6,000 to 8,000 crores in 3 quarters.
I would still buy into IT, Pharma and even textile companies and any export oriented company like Motherson Sumi, because these companies are not dependant on elections and even FIIs feel that large cap and well-managed export-oriented companies will give a return of 30 to 50%, if one has a medium to long term. Meanwhile, the short-term traders can ride the momentum in high beta shares and book profits, once the euphoria level is reached pre-election, and reassess afterwards.
With rupee at 59, it is the best time to buy export-oriented shares like TCS, Tech Mahindra, Sun Pharma, Motherson Sumi, to name a few.