n an interview with ET Now, Rajnish Kumar , Executive Vice President, Fullerton Securities & Wealth Advisors Ltd, shares his outlook for Reliance and the Indian markets. Excerpts:
What was your initial take post the Reliance AGM? Nothing actually out in terms what they are going to do to address concerns of production levels?
There is nothing very dramatic, very new which came out on the whole AGM. However, we also probably had some unrealistic expectations in terms of some startling announcements.
However, the whole thing was quite positive, especially the investments that were spoken about in terms of investing in butyl rubber and other speciality chemicals and also the whole direction in terms of investment in gas cracker plant and the lot of emphasis on gas production and distribution through JV with BP. I would take positive cues from those. Nothing new came out on KG-D6 production, but I would say that was an expected line.
Nothing much has changed post AGM, but the overall sense that one would have got to my mind is fairly positive and that they are on track in terms of investing in the right direction.
Is that your key takeaway that the $10 billion plus of cash which Reliance will generate this year have no large areas or verticals where they want to utilise it now?
Absolutely. Post the AGM the pressure on Reliance to come out with some sense of what they are going to do with that cash increases. Retirement of debt, as rightly said, also indicates lack of investment opportunities right now. The AGM has not given a clear answer on that and the Reliance management will have to come out with some solution for what they are going to do with this huge pile of cash pretty soon.
What is the call on Reliance now and what should one do?
We have got a target price of around 1127 on Reliance and we would stick to that target price. We still see some bit of upside based on our valuation of RIL. Nothing much changes in terms of valuation. Of course we will have to do bit of numbers to come out with the final thing, but that is what it looks like, probably status quo.
What is the sense in terms of the movement on the benchmark indices and where can we see Nifty headed in the next few months to come?
In the next two to three months' time, we expect Nifty to have a downward bias and that is also because we expect inflation to go up a little further from here. Though not aggressively, we also expect RBI to continue with its monetary tightening for some time and overall global outlook also looks quite bearish. We expect that at least for the next three to four months we will see the markets probably negatively biased moving downwards of course with some bounce backs in between. So net-net, it looks going downward.
It could go down to the levels that we saw in the beginning of the years, may be 5250 or thereabouts. We do not expect anything dramatic lower than that unless there is a major trigger which is unforeseen.
With the emerging problems that we are once again beginning to see in developed markets, Europe, the Greece crisis, US. Given all of those factors, would you be of the view that FII or foreign fund allocations into emerging markets could increase over the coming months and may be the negative bias that you talked about could potentially go away?
That may not happen so easily this time around simply because unlike the last cycle where we saw FII money come into India and also into emerging economies, this time there are significant fears in the minds of the FIIs because inflation is a huge concern across emerging markets. There is a feeling that there will be a significant slowdown and potentially hard landing in some of the economies like China. There will be less aggressive risk taking ability. You may actually see more money flowing into safer havens.
Inflationary pressures in EMs a negative for FIIs: Rajnish K
CA ADITYA SHARMA (CA IN PRACTICE ) (16719 Points)
04 June 2011
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