What do you make out of the current market slide?
When we saw the Sensex treading within the band of 19000 to 20000, the movements were not broad- based. In fact, it is currently a two-tier market.
There are a handful of stocks which are very expensive and then there’s the other large group of stocks trading at considerably cheap valuations. The markets were being held up by a handful of expensive stocks but now the expensive stocks also seem to have started to crack. This is because, beyond a point, you cannot feel safe buying these stocks by paying very high valuations of 30-40 times at a time when earnings growth is likely to come down significantly. I don’t think there is a crisis in the markets.
What do you make out of macroeconomic factors domestically?
Macros currently seem to weak because there’s a perceptible lack of confidence. If one looks at the three components that contribute towards GDP growth, private investments have been nearly zero. Government spending has the ability to support GDP growth, but with this year being the last year for current government’s term, they don’t seem to be able to initiate any significant spending.
What do you make out of flows and investor sentiments at the moment?
Indian markets find themselves in a tricky situation where the only participants in the market seem to be the FIIs. Currently FIIs, which strategically have holdings of nearly $400 billion, are tactically shifting their portfolio and this marginal net selling is causing some correction in the markets as there are not enough buyers on the other side, and it is critical for us to have a counterbalancing mechanism through domestic institutional investors as well as by increasing retail participation. If the currency situation improves, equity markets should follow suit, but markets could remain volatile over the near term.
How are you positioning your portfolios to deal with this uncertain environment?
We like companies which are not exposed to very large regulatory changes are less indebted and have inherent demand irrespective of where the economy goes - there are plenty of such companies and are now available at relatively better valuations because of the sharp correction. At the moment, we are slightly overweight on information technology services not only because of the benefits these companies would derive from weaker rupee but also because of higher revenue growth due to improving US economy that is likely to aid discretionary IT spends. We are also overweight on energy as we believe that the government seems open to oil price deregulation.
Any contra calls you can think of currently worth investing in?
Some of the industrials, cement and material stocks look attractive from a longer-term perspective. One can look at capital goods which have been quite beaten down.
How should investors approach markets from here on? Does it make sense to wait for things to settle down?
Just because the market is correcting doesn’t mean that there is no opportunity. In fact, this is the time when people should be getting in instead of moving out of equities. That doesn’t mean you should buy markets just because markets have fallen below 18,000 but investors should buy specific opportunities. At the index level, though we are at around 18,000, because of the bipolarity that exists, certain pockets of the market are available at say 12,000 levels.
That is the area where one can make significant gains if one is patient enough to hold on for a positive time correction. Once a new government comes after the general elections, the market sentiments will improve because then there might be a reversal in sentiments. So say if the elections does happen as per schedule by mid of next year and the next government starts taking decisions by August, then we may see this kind of uncertainty to end by March 2014 as markets have an inherent uncanny ability to discount the events six months in advance.
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What do you make out of the current market slide?
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