Kotak’s Sanjeev Prasad Identifies Three Things Indian Investors Must Watch Out For In Near Term

Oil production, state elections and the U.S.-China trade spat are the three factors that will move the Indian market in the near term, according to Sanjeev Prasad, managing director and co-head of Kotak Institutional Equities.

“I'm just hoping that oil prices remain where they are over the next six months and the elections go smoothly, so that oil doesn't become an election issue,” Prasad told BloombergQuint in an interview.

Crude prices—that fell to $57.10 a barrel from more than $76 a barrel in early October—can spike again if oil cartel OPEC and Russia cut production, he said. India's oil trade with Iran after the 180-day exemption period allowed by the U.S., according to Prasad, is another key factor to watch out for.

Also, India is yet to go through the “election hump”, Prasad said. Election results for five states are due on Dec. 11—“an important day for the Indian market”. If the outcome is in favour of the Bharatiya Janata Party, the market could see a little bit of a relief rally, he said. “But a loss in an unexpected state could lead to a correction.”

The third factor is the U.S.-China trade spat which has led to a slowdown in the Chinese economy, Prasad said.

This comes at a time Indian equities witnessed several bouts of correction this year in the face of the U.S. Federal Reserve's rate hikes and a liquidity crunch in India's credit system stemming from payments defaults at IL&FS group. The benchmark S&P BSE Sensex gained 4.73 percent so far this year. That compares with more than 27 percent rise in calendar year 2017.

Watch the full conversation here.

Here are other key highlights from the conversation:

• Rupee is just reacting to lower oil prices right now.
• We are looking at a relief of 1 percent of GDP.
• Rupee at 71.3 a dollar provides relief to the Indian government in terms of fiscal risk.
• Low seventies is fine for the currency.
• Lower oil price is a big deal for India for three reasons—currency, interest rates and fiscal situation.
• Top-down view of India improved dramatically just based on oil prices.
• Valuation are still on the higher side, but it doesn't look too bad.
• Valuations are attractive in certain pockets.
• Don't know if oil prices are a temporary relief.
• We haven't seen any real announcement on the RBI-government front; expecting clarity over the next few weeks. But the sense of tension between the two seems to have dissipated.