The stock market has corrected around 9% ever since it touched its all-time high recently. But chief investment officer of IDBI Federal Life Insurance Aneesh Srivastava believes that there is no undue cause for concern. In an interview with Ashley Coutinho, he says global liquidity is likely to remain strong leading to appreciating asset prices in emerging Asian economies. Excerpts:
The market is experiencing some bouts of volatility after scaling 21,000. How do you see the Indian equities faring during the rest of the year (FY11)?
It is normal to expect high volatility at all-time high levels. We expect the market to trade at a valuation range of 15-20 times its FY12 earnings unless global uncertainties hit sentiment. These valuation levels translate into a level of 18,500 on the down side and 25,000 on the upside. Hence, in an extremely high global liquidity scenario, the market can move up to an upper range of valuation band. Else, it would take a fair value level of 18,500. At this stage, one can expect global liquidity to remain strong, leading to appreciating asset prices, especially in emerging Asian economies.
What are the near- and long-term headwinds for the Indian market?
Near-term risks such as the European sovereign default may make the market nervous from time to time but the fact is that the European Union and IMF have put a strong bailout package in place to take care of such eventualities. Hence, considering India?s 8%-plus expected GDP growth, India would remain a preferred destination for global liquidity. Domestic issues like political uncertainties, inflation and scams would remain minor irritants for the market.
However, in the long run, India faces two critical issues. First, how to sustain 8%-plus GDP growth she needs to improve its infrastructure, and second that she is structurally a current account deficit country and any deficit of greater than 3-3.5% could pose problems.
India is one of the most expensive emerging markets around. Do you think the premium over other markets is justified?
India?s growth is primarily driven by domestic consumption and its GDP growth rate is one of the fastest in the world. So, a premium is justified as long as we sustain superior growth over other emerging markets.
Do you think the fundamentals have improved to justify the upward movement or is it more liquidity-driven?
Fundamentals have certainly improved but recent market movements have been driven more by liquidity. In a stable global macroeconomic environment, given the current market valuations, sharp corrections would be used by FIIs to buy more in the Indian markets.
Which sectors are you betting on and which ones are you bearish on? And why?
The results for engineering and textiles were above estimates, whereas that for auto, banking, FMCG, IT, oil & gas were in line. So, one could be positive on these sectors in the near term. However, both Ebitda and PAT growth for sectors such as cement, utilities and media were disappointing, hence one can maintain a near-term underweight position there.