Deutsche Bank says MFs to fill FII vacuum, predicts record rally before Budget

Impressed by Prime Minister Narendra Modi government’s focus on manufacturing and infrastructure, Deutsche Bank CEO Ravneet Gill has given a thumbs up to India among other members in the stable of emerging markets and he believes that the country would meets its fiscal deficit target of 4.1 percent.

“Now, with this government’s focus on manufacturing and infrastructure and this whole concept of ease of doing business you will also see the overly of the strategic investors coming in besides the financial investors, add to that the earnings growth that we expect in India of 15-16 percent, I think all of it gives India a lot of tailwind,” Gill told CNBC-TV18 during a discussion.

Nullifying any fear of outflow of foreign funds from the country, Gill said that the prevailing global economic conditions coupled with a business-friendly leadership will help the country to ward off any negative impact on its finances.

“The fact that commodity prices have come off, crude has come off is a big positive as far as India is concerned and after three decades we have a majority government at the Centre with a very decisive leader and that is what investors were looking at. So, regardless of what happens and even if there was a reversal of flows from emerging markets, India would be spared or treated favourably,” said Gill.

Forecasting a good rally for the Indian markets in the current calendar year, Pratik Gupta, Head - Equities, Deutsche Bank (India) expected the Sensex to touch 33,000 points by year-end. He also predicted that the indices would climb to record heights before the Union Budget. Gupta said that the domestic investors will turn out to be the stars in 2015 as they did last year.

“That is definitely one of the big themes for this year and which is why from a investor perspective even if you don’t get the same increase in FII investments, you may still see the market going up because of the return of the domestic equity investor. India had $16 billion of FII investments last year which was lower than the FII investment in the previous year. So, despite the big BJP victory, despite a very pro-business government we actually had lower FII investment last year and yet the market went up,” Gupta told CNBC-TV18 during a discussion .

The Head of Equities for Deutsche Bank attributed the rising Sensex to the positive sentiment indicated by domestic equity mutual funds and said that the same trend would continue in 2015. This happened when the participation of the FII was at best tepid.

“One of the reasons was very strong flows into the domestic equity mutual funds which is a trend that will pick up even further pace in 2015 especially as the outlook for some of the other asset classes like property, gold or even FMPs doesn’t look as attractive as equities,” Gupta said.