With the liberalisation of the Indian economy, Nirmal Jain, CMD, India Infoline, was among the first to take the plunge by floating an independent research outfit. Since then, the company has diversified into a host of financial services ?? portfolio management services, commodity broking, investment banking (as well as floating its own NBFC). As an investment expert, Jain has tracked equity markets across market cycles. At a t?te-?-t?te with Ashley Coutinho, he shares his views on various equity market issues. Excerpts:
What is the market outlook?
The markets will consolidate over the short term. There is uncertainty with regard to corporate earnings as well as the monsoon. But, over the long term, the Indian market is on a strong wicket thanks to a robust economy and coming back of fiscal discipline. While macro fundamentals look good, equity market, at this point, is valued. In the coming year, performance of the indices should be more or less in line with the growth in corporate earnings, which we can expect at around 18-20% on an annualised basis.
Would earnings spring a surprise in 2010?
There might be minor surprises on the upside. In the last year (FY09), the third and fourth quarter results weren?t that great; so from that low-base level, we might see a significant growth in earnings. One can look to a positive surprise in fiscal 2011 with both domestic consumption and the private sector capex picking up. While monsoon will also have an impact, schemes like the NREGA will cushion the impact significantly and boost rural demand. India is better placed now than in the past to handle a poor monsoon in terms of food stocks, and the government’s ability to spend on rural markets and take steps like farm loan waiver.
Which sectors are set to do well and which ones would see a downside?
The domestic consumption story continues to do well if we look at sectors like FMCG and auto. Besides this, pharma is a stable and resilient sector. The IT sector looks interesting, particularly the mid-cap IT sector, because things have started looking up in terms of demand from the developed market. Their economies may not be doing too well but they are outsourcing, as they have the need to cut costs. The IT companies have already started hiring again, are getting new orders and seeing price revisions. The infra sector also looks good.
Will large-caps outperform mid-caps?
It is unlikely in a bull market. Mid-caps will continue to outperform but the out-performance will not be as significant as it had been in the first phase of the bull run. Going forward, mid caps and small caps will both outperform large-caps, but only marginally. In the past, small cap indices gave better performance compared to mid-caps or large-caps.
Do you think fundamentals have improved to justify the upward movement of stock markets or is it more driven by liquidity?
Macro-fundamentals have already improved but the most of it is already accounted for in the price, because the market has moved up significantly in the last few months. The market has also moved up after the Budget, which was a positive surprise.
What is your take on the divestment target set out in the Budget?
The disinvestment target set out in the Budget is ambitious. The key is pricing. The government has to leave 15-20% for the investors. The issues have to be fairly valued and there has to be a gain on listing.
Do you see FII money coming into India this year?
FIIs have already started putting money after the Budget. In the medium-to long-term, that trend will continue though one may see one or two months of negative outflows.
Have retail investors returned to the market?
Retail investors, who burnt their fingers in the market crash of 2008, have become cautious and have still not come back fully.