IIFL head of research (India private clients) Amar Ambani feels that quarterly earnings and prices of commodities will dictate market movements. He believes that the recent run of corporate scams will not dent market sentiments in the long run as the existence of corruption is known to institutional investors. He tells Ashley Coutinho that rise in crude oil prices is one of the major challenges that Indian market faces.

How do you see the equities performing during the rest of the year (FY11)?

Quarterly earnings and prices of commodities will dictate market movements. In our opinion, the Nifty should trade between 5,800 and 6,450 till March 2011.

Will the current crop of scams dent market sentiment in the long run?

While scam revelations can dent sentiment in the near term, it is unlikely to cause an impact in the long term. The existence of corruption is a widely known fact among institutional investors that have been investing in India for long. Unfortunate as it may be, it is termed as a cost of doing business in this country. It is understood that while China has prospered due to its governance, India has grown despite its government. Therefore, money will keep coming. As an optimist, I would look at the investigations as a small beginning towards eradication of corruption.

What are the headwinds that you foresee for the Indian market?

The health of the global economy will have to be monitored beyond 2011, especially on withdrawal of stimulus provided over the last two years. 2011 may also see debt restructuring requirement for PIGS economies. Quantitative easing around the world has resulted in a rise in major asset classes, including commodities. The rise in prices of crude and other commodities is a matter of concern as it can impact our fiscal deficit and current account deficit situation, stoke inflation and impact input cost of companies.

While FII flows have been robust, FDI (foreign direct investment) is sitting on the sidelines. Delays in land acquisition and environmental clearance, slow execution, risk of change in policies with retrospective effect (as put forward in telecom), slow opening up of sectors and tax uncertainty (Vodafone case) are major factors affecting FDI.

Being one of the most expensive emerging markets, do you think India?s premium over other markets is justified?

India is among the fastest growing economies in the world. It has provided sales growth visibility for two years, which even many Asian economies do not offer. There is a large list of companies with a sufficiently large market cap, conducive for investment. These are good enough reasons for India to continue enjoying a premium.

Which sectors are you betting on and which ones are you bearish on?

Rising incomes levels, NREGA schemes, easy finance availability and good monsoons have all resulted in urban and rural prosperity. Among consumption sectors, we like the auto pack, which has seen high growth in volumes month after month. Information Technology also looks interesting. There is sufficient business visibility, price increases from customers is expected, Europe and US data has been encouraging and this space is a good defensive bet in the light of recent scandals.

We are cautious on banks, which will require bigger provisioning in the coming quarter and may see falling NIMs (net interest margins) if more monetary tightening takes place to counter inflation. We are also negative on the real estate space. Registrations are falling, prices are too high and unsustainable and ratio of speculation demand compared to occupancy demand is high. Besides, governance in these companies is an issue and capital availability will be restricted going forward.