Domestic financial institutions will continue to drive growth

Updated: Dec 30 2007, 06:31am hrs
Cashing in on the boom, postal life insurance funds are ready to make a splash into the stock markets. Nilesh Shah, deputy managing director and CIO, ICICI Prudential AMC, speaks to Rahul Jain of The Financial Express on the likely trend in the bourses next year

What is your outlook on the equity markets for 2008

The equity markets in 2007 were driven by domestic participation. This trend is expected to continue in 2008, which will further decouple the Indian economy from its dependence on FIIs. The year 2008 could also see the introduction of new products like participation by postal life insurance funds in equity markets which will pave the way for long-term retirement money to be put into the bourses.

Also, long-term fundamentals of the economy look solid considering that the inflation is under control and that the savings and investments are at 35% plus levels. All things considered, the economy looks well balanced and poised for long-term growth.

Which are the sectors you are bullish and bearish about

Sectors like technology, pharma, auto and consumer durables, which were latent last year, will begin to pick up, while sectors like capital goods, power and utility, that drove the market rally in 2007, may take a breather.

What will be your strategy in this volatile market for the New Year

The fundamentals of the Indian economy are solid and we are bullish on the long-term growth of India. We will concentrate on picking the right stocks through a bottom up approach. The emphasis will be on finding companies with good and sound management capabilities, efficient business processes and reasonable valuations.

What would you advice to the investors in 2008

Investors should invest through SIP, which is an ideal investment tool that can help ride the volatility by averaging out the market risks. It also brings about discipline in the investment process and facilitates the investors objective of achieving long-term financial goals. Also, asset allocation is another important vehicle, which can help leverage the return potential of the investment portfolio while mitigating the risks. However, it is also important for the investor to maintain his returns expectation at realistic levels and he should not get carried away by short-term market movements.

Going forward, mutual funds will have a crucial role to play in the investment scenario in 2008 and be an important catalyst that will help the investors realise their long-term investment objectives.

What are the indicators/developments/triggers investors should watch out for

On the global front, movements in the Chinese markets should be closely monitored. This is because the Indian equity market valuations is to some extent re-rated on the basis of the Chinese market valuations and any increase in Chinese valuations can propel our equity market valuations upwards and vice versa.

The interest rate market also needs to be watched closely as the rates in India could fall in 2008 with an aim to put a tab on higher yield seeking flows.