The equity markets have entered a consolidation phase and are facing several headwinds, believes head of research at DSP Merrill Lynch Jyotivardhan Jaipuria. In an exclusive interview with Samie Modak, he says market will remain flattish in 2011 and the current correction will be healthy as markets going forward will get serious long-term FII money. Excerpts:
What returns you are expecting in 2011?
This year is going to be a range-bound year with probably close to zero-percent returns. 2009 was a big year for the markets. Whenever, you have sharp rallies it takes 18-24 months for the markets to consolidate and absorb those gains and get ready for the next leg of rally.
Do you think markets could correct even more from here?
I think markets will correct as short term we have got quite a few headwinds. We won?t get strong FII flows like last year . To that extent markets are vulnerable. But ultimately it?s not all negative ? our economy will still grow at 8%-odd and corporate earnings will grow at 15-17% despite the earnings downgrade . After the correction now, valuations have got close to long term average. That is what probably will provide some support to the market over the next one year.
Currently, we are seeing FIIs taking money off the table. For how much more time do you see this continuing?
We have had $1 billion flown out now. In some sense, this is nothing very material to get concerned about. In the long term, with the kind of growth we are showing, money will come back again. If the Indian markets correct, you will have more longer-term money, which will be good for the markets. The quality of the money in Indian equities will become much better.
Do you see the primary market activity slowing down as FII flows are dwindling?
Till we see a revival in the secondary market there will be a slowdown in the primary market. In the next three-four months, when the foreign money starts coming in again with a lag of 8-10 weeks primary paper issuances will pick up. In some sense primary markets are a bit of balancing factor for the secondary markets.
Which sectors and stocks do you see doing well?
In the next three to six months the general trend is to buy stocks which are more dependent on the global economy.
Do you see any value in the banking stocks, which have corrected significantly?
Banks stocks have corrected quite a bit and you are starting to see value emerging in some of them. But they are totally anti-momentum right now. You see there is value in the stock but the momentum is against the stock price performance. Whenever you buy value you have to remember you are buying against consensus, value investing is more painful then the momentum investing.