'The long-term outlook for equities remains strong'

Nov 17 2008, 12:07 IST
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SummaryWhile the short-term outlook for the markets remains murky, the inherent strength of the India growth story will ensure that those who keep their faith in equities...

While the short-term outlook for the markets remains murky, the inherent strength of the India growth story will ensure that those who keep their faith in equities are richly rewarded, says Sankaran Naren, chief investment officer, equity, ICICI Prudential AMC.

Earlier, the estimates for growth of the Indian economy in FY09 ranged from 7-7.5 per cent. Now estimates have been downgraded to 6.7-7 per cent. What is causing these downgrades?
The downward revision has been on account of weakening global economic prospects due to intensification of the global turmoil. The growth outlook for India remains positive. However, pressure is expected to some extent on corporate profitability on account of cyclical slowdown due to high inflation and interest costs, tight credit scenario, and global influences.

India will be a gainer as commodity prices correct. With commodity prices declining, and India being a domestic demand led economy, we expect India to outgrow all other economies.

Have we seen the worst of the financial crisis in the West, or will there be more bad news?
The global financial crisis could possibly be in its last leg. This has been possible because of the prudent monetary and fiscal measures by governments and central banks across the world. Realising the enormity of the situation, they introduced measures to avoid a big meltdown. Efforts such as capital infusion into banks by western governments, support to money market funds, and guaranteeing of fixed deposits by governments have helped reduce the impact. Initiatives towards improving accounting norms are expected to help further.

What are the positives and negatives within Q2 FY09 corporate results?
The Q2 FY09 results were a little ahead of expectations due to the high commodity prices. Remember that the benefits of higher commodity prices accrue positively to many Sensex constituents. The results reflected this. EBITDA growth lagged sales growth due to the impact of higher commodity price that added to input cost pressures in some sectors. However, barring inventory losses in the current quarter, input cost pressures acting as a handicap on margins is a matter of the past for 2009 at least.

How are results likely to be in the remaining two quarters?
They are not expected to be very encouraging. The sharp fall in commodity prices could lead to significant one-time inventory related losses to many companies. This will be reflected in the next two quarter results. The current market seems

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