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Getting ready for multi-year bull market:

Gopal Bhattacharya, Societe Generale
Post a Com m ent

By ET Now | Aug 20, 2016, 02.13 PM IST

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In a chat with ET Now, Gopal Bhattacharya,

Societe Generale, says while there will be
correction from time to time, India is in a
sweet spot. Edited excerpt:
ET Now: Indian markets have been a big
beneficiary of strong liquidity flows in
line with others but yesterday we saw
even the DIIs have started to add in this
positions. Up till now, DIIs were booking
profits and you got it right earlier in May.
In fact, you made a point that it is the

If you assume that earnings growth will be around 10-15%, over

the three years, 45% return is what we are looking at, says
SocGen's Bhattacharya.

liquidity which will take Indian markets

higher. How is the case looking right
now? How much of this massive liquidity
flow is sustainable in your view?
Gopal Bhattacharya: Let us look at where we started from. We started in February-March


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around 8600-7000 odd and today we are roughly around 26-27% up which is a fair
significant amount of move. So the first question is - can it last? I would say yes. Now can it
last without any correction? Probably no. There are several elements to this. When we ask if
liquidity is the main driver, I think it is certain that it is the main driver. Having said that, there
are several other drivers and if I have to put it in a very short sentence if you think can it last? I
would say we are getting ready for a multi-year bull market which could last maybe two-three
years and, of course, that takes into consideration that there will be corrections from time to
time but India is in really sweet spot and we are just getting ready for that.
ET Now: The emerging market pack as an entirety is witnessing some very good
strong inflows. If you were to compare it to what you are seeing happening right
now in the developed part of the world, would you go to the extent of saying that

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Opinion on Kashmir

you are actually not only seeing a strong allocation towards EMs but perhaps the
trade is also tilted favourably towards emerging markets right now?
Gopal Bhattacharya: What you are saying is allocation and that is only a part of the story. I
think there are several other elements to it. One, of course, would be the enormous amount of
liquidity sloshing around in the global markets. For example, central banks are currently
buying roughly around $200 billion of bonds every month which is more than whatever they
were buying even at the height of credit crisis in 2009.
it up
there is obviously a huge move in terms of getting yield. In the world today, the amount

of bonds which are yielding negative is now increasing every day. We have roughly got
something around almost I think $12 trillion of bonds now which are in the negative territory.
What that means is that if you are for example a long-term investor, like an insurance
company which is looking to match its long-term liabilities with putting on assets of equal
maturity, the amount, the kind of opportunities which you will get in the developed markets is 1/5


Getting ready for multi-year bull market: Gopal Bhattacharya, Societe Generale - The Economic Times

gradually diminishing. You are simply not going to get that return ratio required and so
income will diminish.
So I think from that perspective, there is both a shift towards getting more yield and which is
why you are seeing a lot of movements in the bond side. That's a bit more in terms of the
quantity of money which is sloshing around plus the negative yield and then we are also






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at growth
differential. Now
on the growth
I would

There needs to be chemistry

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is More
not much doubt
that in the emerging markets, fundamentals have improved a little more relative to the
developed markets in last few months or last six months. There are some fundamentals and
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growth differentials to be looked at. Whether the growth differentials are adequate and
with a net worth of $1 bn
whether deal
it is enough
to sustain
The surprising
also comes
at a timea very long-term rally remains to be seen.

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ET Now:
us talk
about such
what you are making of Indian market valuations right
further damage the prospects of another
which Let
generation of Kashmiri youth.
as Bengaluru-based
now. Do youIn-Mobi.
believe that there is scope to actually expand from where we are right
If theres a Kashmir on Earth it is this, it is
this, it is this
Solution to Kashmir lies in India adhering
to UN resolution: Geelani

now or do you also suspect that we are going to see a little bit of correction going
Gopal Bhattacharya: I think there are several elements in this question. So first of all let us
talk about valuation, There are various ways of valuation, look at the price earnings or you
can look at price book. My take on this one is that given the amount of liquidity which is going
around in the market, given the dearth of investment opportunities, given the kind of
environment India is in, if you are talking about India specifically, isolating India from whatever
is happening around the globe that will give a lot of clarity and focus and that would tell you
that India is in a particularly sweet spot. So from that perspective, I do not think it is
impossible. I think it is more like probable that the valuation may continue to be stretched or
the market will continue to go high.
ET Now: The reform drive of the government is likely to get much speedier that is
the indication coming in from prime minister. Even on the Independence Day
speech, he spoke more about focus on execution now compared to just
announcement of big reforms. How are you analysing the work done so far as an
element which had aided the rally so far?
Gopal Bhattacharya: If you are going to assess this government's performance you got to



look at where it started from and you got to look at what were the external circumstances.
Now, if you look at the external circumstances, it has not been particularly good. Internally
also we have had couple of droughts and then we have a starting point which was not very
good. So taking all that into consideration, I think this government has done a pretty decent
job and I am very confident that it will continue to get better from here onwards.


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Now to answer the second part of your question in terms of whether reforms will get faster
and so on, the government had reached at half-year mark, so it is important that it focuses on
some of the flagship schemes, make sure the penetration of these schemes, especially
social sector schemes, really goes deep into the Indian society. That is one part. You need to
probably consolidate a bit and then ensure the implementation and penetration of stuff rather
than looking at bigger or newer elements.
The second part is some of the stuff which is already done tends to be underappreciated or
underestimated. For example, the very fact that millions of newer bank accounts have been
opened, I think that is a very, very significant step and will have a multiplier effect in many
years to come. The other part which I like about this is that normally this government is doing
stuff which may not benefit it from five-year election cycle, some of the stuff I am looking at will
really have a long-term impact and that is really good because some of the problems India
has will not be resolved in three-four years, will probably take 5-10 years and I think this
administration is trying to look at some of those problems and I think that is really-really
ET Now: Let us talk about the other area of the market which has really failed to
really add to the sentiment and that is earnings. Surely some people say that the
rate at which the downgrades are pouring in may decelerate but overall earnings

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estimates being upgraded still a thing which is far off. How are you looking at all of
that and the earnings momentum? Do you think in two-three quarters we may start 2/5


Getting ready for multi-year bull market: Gopal Bhattacharya, Societe Generale - The Economic Times

seeing some improvement?

Gopal Bhattacharya: I agree with you. The earnings revival is not yet very firm. I think the

main issue is lack of capacity utilisation is not as one would have thought. I mean the reason

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corporates are deleveraging and were probably overleveraged earlier, so that is happening.

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But I think it is more a question where corporates start seeing more capacity utilisation and
that will happen. I would say this is early days yet. The earning story will happen, maybe it will
happen with a lag but I think we are very positive that it will happen.
ET Now: What is the picture that you would sort of paint for Indian stocks in the
current environment over the next two to three years? Would you say that we have
it in us to give a return of something like 30% to 50% , is that possible?

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Gopal Bhattacharya: Well I mean if you look at an average return of 15% what a standard

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equity mutual fund gives you and if you assume that earnings will be around the 10% to 15%
level and you multiply that by three years if you are saying three years, well then 45% is what
you are looking at.
ET Now: Since you yourself are from a big MNC bank, cannot help but ask about the
banking sector. Of late, that is really the pocket of the market that seems to be

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lending a whole lot of support, doing all the heavy lifting. Would you go to the extent
of saying that perhaps the worst is over for that area of the market?
Gopal Bhattacharya: There may be some more difficult times but I think the intention is very
clear, the path is very clear and it is happening. These are strong institutions. There is difficult
process to go through. The government is already behind it. The central bank is already
behind it. So I do not think there should be any apprehension about it. So yes I am very
confident that this will get done. Maybe it will take little more time than many people are kind
of thinking about but it should get done and yes we are very confident that this will get done.

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