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Right time to look at growth stories, build portfolio

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SummaryAfter a stellar performance last year, Indian equity markets will consolidate and look for structural changes this year, says Sonam H Udasi, head, research, IDBI Capital Markets.

After a stellar performance last year, Indian equity markets will consolidate and look for structural changes this year, says Sonam H Udasi, head, research, IDBI Capital Markets. In an interview with Ankit Doshi, Udasi says the focus would thus remain on companies with rich cash flows and high return ratios. Further, mid- and small caps are seen outperforming the frontline stocks this year. Excerpts:

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The outcome of the RBI's third quarter policy suggests that it is open to growth more than it was a few months ago. By the end of FY14, the market could see further loosening in interest rates. In our view, the RBI could reduce an additional 50 basis points between now and FY14 end.

What are your views on India’s overall economic and market conditions?

From a sentiment perspective, India is in a much better position than it was six months back. There are still some concerns in terms of the twin deficits that we are running. The market has rallied on expectations that things have improved. From here on, market will consolidate and look for real changes on the ground.

At present, there are only talks that economic conditions will improve and that GDP growth will start to move up. We are yet to see any signs of that. But, this is the time to build a portfolio by looking at growth stories. If sentiments do turn positively and meaningfully, a lot of stocks that are not part of the benchmark will get re-rated significantly.

There is a view that the Budget is likely to be a more populist one, considering that this is an election year.

In the last two decades, pre-election Budgets have largely been expansionary. So, going by history, chances are that this year’s Budget could be expansionary as well.

Having said that, it may be a little more conservative than what the market is expecting. For instance, our fiscal deficit target for FY13 is 5.3% of our GDP. The market, however, is factoring in closer to 5.5-5.6% and anything above that would be a concern and would indicate that no progress has been made since last year.

How do you foresee Indian markets this year?

Our target for the Sensex is 5-10% higher from the current levels. We are a bit more sanguine than the bearish guys. From here on, it is not based on what the US or Europe would do; it is

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