With the Indian equity markets gaining for the fifth week in a line, there are skeptics who are getting fidgety over the continuation of the trend. Parag Parikh, chairman of PPFAS, a boutique broking firm, and author of several books on behavioural investing spoke with Ashley Coutinho of The Financial Express on his views on the markets and how should retail investors look at the current situation. Excerpts:

What is your market outlook?

The equity market ? as measured by Sensex values – has risen from the lower levels of 8,000 to 17,000, yet it is not over-valued. The stock markets had corrected to 8000 levels, largely on account of massive liquidation of stocks (across the counter). A lot of people are now looking at the markets from that level and feel the market is expensive.

One can always buy stocks irrespective of whether the Sensex is at 21,000, 17,000 or at 8,000 levels. Sensex and Nifty are not the right benchmark for gauging the mood of the entire market. I prefer looking at the broader market of 6,000 stocks rather than just Sensex or Nifty. Many of the non-index stocks are today quoting at reasonable valuations.

The long-term outlook for the market is also definitely good. We have had a good budget and the corporate numbers are also encouraging. For instance, auto sales have been robust this year. There are concerns though about the government steps to control fiscal deficit. Another event to watch out for is the forthcoming monsoon as well as the inflation numbers.

What about company valuations. Do they look cheap or expensive at this juncture?

We follow a bottoms-up approach and sometimes buy into companies that might look expensive today, but has the potential to give higher returns. Mphasis, in my opinion, is trading cheap at a price earnings multiple of 14 (Rs 670). ICRA is also a good pick.

What is your view on the mid-cap stocks?

Mid cap and large cap are all semantics and marketing gimmicks of fund houses. As long as I?m getting value, it doesn?t matter which stock I buy. For example, in 1994-1995, Infosys was a mid-cap and large-cap stock with hardly any volumes, but look at where it is now.

You strongly subscribe to ?value? as against ?growth? style of investing. In 2009, value stocks have outperformed growth stocks in terms of returns? What?s your opinion?

There is nothing like growth stock. It?s only in hindsight that one says that a stock had gone up. Often, when fund managers are unable to explain the rationale for paying a high price for a particular stock, they dub it as a growth stock. Even for a growth stock, there has to be value first.

What do you make of the divestment target set out in the Budget?

The government has to leave the money on the table for the investors. Giving a discount of about 30% could help the disinvestment process. The more (discount) you give it to the people, the more will be their participation. Also, it could pave the way for deepening of the capital markets.

Which are the global cues to watch out for? Is the global economy out of the woods yet?

Every day you get conflicting data from overseas and the market moves on speculative activity. It could be the stable US job data or the rising deficit in some other country. But I believe that the global situation will improve. While India is connected to the global markets, it is also resilient. However, if we miss our deficit targets, then the foreign fund inflows might get impacted.

Do you see FII money coming into India this year?

There are good investment opportunities for the FIIs. But what we require is more depth in the market. PSU disinvestment will hopefully help this cause.

Will the burst of IPOs suck liquidity out of the secondary market?

There is enough liquidity to go around with. So, there will be minimal impact.

Where do you expect Sensex to be end of this year. Will large cap outperform midcaps?

For that you have to an astrologer like Bejan Daruwalla.

Have retail investors over a period of time become better at taking investment decisions?

Retail investors learn by making mistakes. But greed is such an emotion that people tend to make the same mistakes again and again. The information overload is also making the market a gambling den.