Kotak Mahindra Old Mutual Life Insurance chief investment officer Sudhakar Shanbhag said the Sensex is likely to trade in a band till the end of this fiscal. To him, inflation and crude oil prices remain the main worries for the Indian market. He tells FE’s Ashley Coutinho that the way markets behave will largely hinge on the relative attractiveness of the US markets vis-?-vis their emerging counterparts
How do you see the Indian equities performing during the rest of the fiscal?
From an FY12 perspective, we have an expected Sensex range of 18,500 to 22,000 based on the GDP growth of about 8.1% and earnings growth expectation of about 20%. Up to March 2011, the market could be in the same range with the upside band at 20,500.
Will the current crop of scams dent market sentiment in the long run?
This factor is widely prevalent across the globe and India is no exception. The difference this time is the magnitude and frequency with which the news is being released. We believe this can be seen as a good opportunity to cleanse the system to some extent. If we fail to use this opportunity, it could lead to a case of de-rating but we do not give a high probability to this situation.
What are the headwinds that you foresee for the Indian market?
The macro hypothesis for FY12 is building around a GDP growth rate of about 8.1%. Inflation is expected to remain sticky, fiscal deficit in the range of 5.2%, currency in a range and current account deficit (CAD) of closer to 3.5?4%. From a local perspective, the worry at this point is inflation and related impact on interest rates and oil prices beyond $100 per barrel.
Being one of the most expensive emerging markets, do you think India?s premium over other markets is justified?
The premium relative to other emerging markets is justified from a relative opportunity which offers growth. Having said that, the bigger challenge is in terms of global (especially the US) growth expectations coming back and the relative attractiveness of the US versus emerging markets.
Do you think fundamentals have improved to justify the upward movement of stock markets or is it more driven by liquidity?
From an Indian market perspective, we have been beneficiaries of both the fundamentals and the amount of money we have attracted during calendar year 2010. To explain it on a relative basis based on earnings growth, our expectation was that the Sensex would be at 20,000 by March 2011, but the flows have got us to that level well in advance.
Which sectors are you betting on and which ones are you bearish on?
We are overweight on the consumption and outsourcing (IT & pharma) theme. Within consumption, we are overweight on healthcare and media, underweight telecom and neutral on others. In global commodities we are underweight on metals, neutral on oil & gas and overweight on fertilisers. Overall, we are currently underweight on infrastructure. Within infrastructure, we are overweight on capital goods and engineering and underweight on real estate and utilities. We are neutral on the BSFI segment largely due to the overall weight the segment attracts.