You cannot have robust growth with both consumer and government spending being constrained, says

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Navin Suri, MD and CEO of ING Investment Management (India). In an interview with Bijoy Sankar Saikia, Suri said Q2 results on an average are going to be better than expectated. Excerpts:

The stock market is showing bouts of good performance over the past few days, and there appears to be a bullish undercurrent despite the uncertainties. Have we bottomed out?

I expect the global uncertainties to continue.

Slow global growth, combined with recession fears and news-driven violent market movements, would be the new normal at least for a couple of years. You cannot have robust growth with both pillars of spending (consumer and government) being constrained. Consumer spending is constrained due to joblessness and poor consumer confidence. Public/government spending is constrained by high deficit that needs to be brought down by austerity measures (spending cuts or higher taxes -both of which hurt growth). Domestic growth is also constrained by RBI's fight against inflation.

Given this background, we expect volatility to continue in the domestic stock market.

If Greece were to see some kind of a solution to its crisis, will it help the market gain some momentum even though we all know that it may not end the problems of the euro zone? How bad may it get, if Greece were to default? Do you see the market prepared for such an eventuality?

The solution to the Greek crises is more support from the troika as well as support from key euro zone members backed by timely implementation of austerity measures. This would be a slow and long-drawn process.

Greek CDS spreads do attribute some probability of default. But the equity markets, are at present not prepared for such an eventuality.

On the US, we are getting assurances that things are not as bleak as one fears. But many feel a stimulus package from the US Fed at this stage may work both ways for the Indian economy. What are your views?

True, a QE3 (in terms of additional quantitative easing) could result in a commodity price rally, which is bad for domestic inflation. A lack of it could probably rattle investor confidence that the US Fed Reserve is not in a mood to support the faltering US economy. The latter, I would think, would have been better for India.

Last week we had a good set of advance tax numbers, which showed robust growth across sectors in Q2. What are your expectations from September quarter results, which will start coming in over the next few weeks?

Given the pessimism in-built in today's market sentiments and stock prices, it is possible that the September quarter results on an average will be better than expectations.

Supposing we will soon have a positive scenario, if the market were to see a northward directional movement from here on, which sectors do you feel will gain the most?

Financials and IT (if there is a global recovery) would gain the most. These are also the sectors, which have fallen the most year to date.

We have seen banking and infrastructure stocks lose quite a bit over the past few months, mainly on worries of rising interest rates. Now that interest rates are about to peak, do you think it's about time these stocks should move upward? Are there more headwinds ahead?

Banking stocks have been impacted not only due to rising interest rates but also due to issues of asset quality and slowdown in credit growth. Similarly, in case of infrastructure stocks, the key issues have been execution, competition in project bids, land acquisition and corruption issues apart from interest rates.

Does the rupee's downward spiral worry you? What would be your outlook on the domestic currency for the next two quarters?

Yes, a sharp depreciation of the rupee is bad for inflation. So this is a worry. I do not expect any further depreciation as the Reserve Bank of India would look to support the currency to buffer inflationary pressures due to currency depreciation.

There have been reports that the government may increase the fuel subsidy burden on ONGC, which shows a certain strain on its deficits and quite a bit of uncertainty around the FPO of the PSU behemoth. How do you read this? Do you see signs of worry there?

There is no clarity on this at present.

Meeting divestment targets today seems to be a tall order. If ONGC is made to share more than 33 per cent in terms of under-recoveries, this would surely be a blow to investor confidence and surely a worry. It would also raise corporate governance issues as during the pre-FPO roadshows indication was given that the share of subsidy will not be more than the 33 per cent number.

How has your fund house been playing in the market over the past two months, when the stock market has lost around 7 per cent?

Have there been biases in terms of sectors or market caps?

We were titled towards defensive sectors such as FMCG (fast-moving consumer goods) and pharma. We were underweight on metals and financials. This stance has benefitted us.

How would you advise retail investors to approach equity now? Will it be safe to touch the mid-caps now?

Investors should stick to their strategic asset allocation and not look to time the markets. SIP is one of the best methods to invest.

Investors with higher risk appetite should have a component of their equity allocation in mid-caps.