The market today presents an opportunity to buy quality stocks since it trades at an attractive P/E of 14-15x forward earnings, says Jyoti Vaswani, CIO, Aviva India. Vaswani, who manages about Rs 7,200 crore, half which is invested in equities, tells Ashley Coutinho, the slow pace of investment could hurt the India growth story in the medium term.
How do you see equities faring in the next two months?
The Indian market has seen a downtrend in the last couple of months, largely driven by external factors rather than India-specific issues. The main reason for the FII exit has been a strong improvement in the economic health of the western world. While the markets could remain volatile, the long term growth story of India remains intact. The market now trades at an attractive P/E of 14-15x forward earnings. We believe the current market conditions present a good opportunity to buy quality stocks.
What are the near- and long-term headwinds that you foresee for the market?
The slow pace of investment in the infrastructure sector could pose a threat in the medium term to the India growth story. Inflation is a cause for concern because RBI has been raising rates to rein it in. Also, supply side constraints, global economic recovery, second round of quantitative easing, and rising food and commodity prices are posing a challenge. High interest rates, which impact growth with a lag, could hurt if inflation continues to remain at elevated levels. FII flows too could cause some volatility in the near term.
The mid-cap space has taken a beating in the past few months. Do you think valuations have become attractive in some sectors?
Mid-caps have underperformed the broader indices by a wide margin and valuations of some of the mid-caps, particularly in the infra space, have become attractive.
How do view the December 2010 quarter earnings?
Earnings have mostly been in line with expectations. While the banking and financial sector surprised positively, telecom and FMCG sector numbers were below expectations. Margins have been under pressure this quarter in several sectors like auto, FMCG, IT, telecom and utilities. We see some earnings downgrade risks. However, most of the components of Sensex such as IT, energy, commodities and financials carry limited risk. Risks, however, do reside in auto, industrials & infrastructure as interest rate and high commodity prices could impact growth as well as profitability.
What are your expectations from the budget?
The major expectations from the Budget are the rollout of GST and DTC. There could also be some relief on income tax and excise duty to counter the impact of rising inflation. Given that FDI flows into India have not picked up, the government could look at opening up the insurance sector and raise the FDI limit to 49%. In order to give a boost to the domestic insurance industry, a separate limit for insurance under Sec 80C could be expected.