While the equity market looks steady at the moment, there is anxiety at the year-ends over the trend ahead. Madhabi Puri Buch, managing director & CEO of ICICI Securities shared her views? on how the market is shaping up and the likely triggers? with Akash Joshi . Excerpts:
At the moment, we have seen the volumes dip considerably on the exchanges. Now, the market is also moving in a positive direction, so all seems well. But would this low volume scenario be a cause of concern as we go ahead?
Well, this is the typical December phenomenon. Globally, many fund managers go on leave for Christmas and new year. Hence, they try to close their open positions to avoid any sharp movement during that period. Also, usually overseas investors try to book gains and shore up their balance sheets during December, as it is the financial year end for them. So, there is nothing to be perturbed about at the moment.
What does the market trend look like to you?
The market is certainly expected to continue its upward trend even though the slope could flatten out a bit. However, the volatility around this slightly flattened slope could be quite sharp. Therefore, investors should look at a medium- to long-term horizon for their investments, and not at the short term.
Now, things are moving rather flat. What are the triggers that you see in the market place that could tip the balance, or rather change the pace of movement?
I don?t see anything much happening in December. The one thing that we must note is that there is some euphoria in the market about the recent 7.9% growth recorded by the Indian economy in Q2. In many ways it is justified. However, the third quarter numbers might not be similarly encouraging. And this is statistical in nature. The effect of the poor monsoon is expected to kick in and we could even see a negative 6% growth in the agricultural sector. However, market experts should see that as a quarterly phenomenon and consider that it would only impact a one-and-a-half percentage point when annualised. And if we look at the net GDP growth of the agricultural sector, I expect we would continue to see interesting growth levels.
Then the market is also looking out for signals from the world’s leading central banks and their stance ?would they be heading back to normal days and rates? We expect India to do this sooner as it has got the advantage of a strong growth and also inflation rate is set to rise. Hence, the reasoning that the market growth slope, though in the upward direction, would flatten a bit. And then there is the third-quarter earnings that will come up in January. Here, let me add, I expect we all will be pleasantly surprised. We have been speaking with corporates and the ones that are likely to do well would obviously do so. However, even some of the companies that were reeling under pressure, like textiles and diamonds, are also optimistic. So essentially what this means is that the price earnings multiple, will start looking different when the earnings grow .
What are the sectors that you would like at the moment?
Needless to say infrastructure looks attractive. There is a great demand for the sector which has significant growth potential given the latent demand and the favourable regulatory policy environment and there will be funding made available to the sector. However, one must realise that India is not only one India, there are several layers to this. A person earning $100 a year is now moving on to earn $200 and will therefore be buying more food and clothing. The next higher income strata is also growing and they would be buying steel and cement to build their houses. The next income level is buying two-wheelers and so on…and at the top end, there is a segment that is driving growth of the luxury goods. So there is demand from all corners and therefore most of the sectors are set to do well.
