Don?t mistake the current market slide with the 2008 crisis, says Sankaran Naren, CIO Equity at ICICI Prudential AMC. In an interview with Chirag Madia, he says Indian equity markets in 2008 were trading at about 24 times one-year forward earnings while it is currently at 14 times. He advises investors to start investing in equities and diversify across market capitalisation and sectors, barring FMCG and Pharma. Excerpts:
Is Indian equity markets likely to be affected by US debt crisis?
The US downgrade is definitely important from the global standpoint but is expected to only have a short term impact on the Indian markets. Mistaking the current slide in the market as some 2008-type crisis is easy. To put the differences straight, Indian markets were trading at about 24x forward earnings in January 2008. Today the forward PE is around 14x. Also the FII outflow pattern is different i.e. the FII outflow to the tune of $ 13 billion in 2008 was a reversal of the massive inflows that just preceded. This time for the calendar year 2011, net inflows are about $ 1 billion. Even if there is a reversal of flows, the magnitude is hardly comparable and thereby the dependence is relatively less. Also the prime worries of India of inflation , interest rates as well as higher commodity prices seem to be at its peak, therefore investors need to look at every correction as an investment opportunity.
With commodity prices falling, do you expect inflation to cool-off?
Yes, the crisis has led to material correction of global commodities prices. Food inflation is at a low and monsoon has also been good. This is good news on the inflation front. Given that correction has been broad based, investors can look at investing across market capitalisation and sectors, except FMCG and pharma. In case of FMCG and Pharma , these two sectors have outperformed the recent market and have not corrected in line with the market.
Will FII interest wane for Indian equities?
Indian markets continue to remain attractive for investments over the long-term. The only concern in India is that Indian inflation continues to remain above comfort zone. The moment FII?s see Indian inflation moderate and gain more comfort on the fiscal scenario, they will turn more positive. We expect FII interest in the economy to continue.
Fed has pledged to keep rates low till mid 2013. Will it support market sentiments?
The announcement will help money come into growth markets like India given that the interest rates in markets like US is clearly now stated to remain low till the said date.
Do you expect a QE3 from Fed?
There are many people who ask whether there will be QE3. In fact with QE2 India along with China and Brazilian markets did badly . So I am not able to understand why our markets are looking at QE3, as QE2 has not benefited India.
What?s your take on Q1 earnings?
I think corporate earnings will be little muted in the near term, but I think more important thing is that the inflation worry in this kind of atmosphere should be much lower than it was three months back. I would say that these are times to invest as we have fair amount of fear in the markets while valuations have corrected with long term growth story still intact. Currently markets have reached that level where one has to consider investing. Experience in the past suggests that one cant keep waiting for one specific price point, but should invest at every dips.
Which sectors are you looking to invest?
Our view is that consumption has to slow down and infrastructure has to eventually pick up. Initial indicators on the cars sales and even two wheeler growth is showing sings of slowly down. So I believe that consumption will slow down and inflation will come down and then infrastructure sector will do well.