What is your view on the market
I am bullish about the market. We have entered a zone of volatility and high risk, but with a positive bias. The local markets are enthusiastic, and justifiably so, with India finally getting its due recognition globally. International long-term funds are coming to India on back of robust performance by the corporate world.
What is really driving the Sensex
Strong economy and robust corporate earnings have been the key long-term drivers. This is indicated from $11 billion poured by FIIs during the period (with $3 billion in September alone), far ahead of $9 billion invested in 2006. Along with this, short covering is also accelerating the uptrend in markets, on the back of receding worries on the sub-prime issue.
Now that the US Fed Reserve has cut their key interest rate by 50bps, can we put the sub-prime issue behind us
By cutting interest rates aggressively, US Federal Reserve has sent out a clear signal that it intends to take care of the sub-prime issue. The amount involved is not as calamitous as originally perceived and, thus consequently, the worst of the sub-prime crisis is behind us. Overall, the US economy is headed for soft landing and hence our growth and stock market will not be impacted seriously. Nonetheless, noises on the US economy will keep our markets volatile.
How do you see the role of retail investors during the pre-sub prime crisis and post sub-prime crisis What is your advice for retail investors
Retail investors have been very edgy and apprehensive about the outcome of the whole sub-prime issue. With the sentiment turning positive hedge fund managers are witnessing lesser redemption pressures, thus restricting the flight of liquidity. Further, the short positions in the markets are getting covered, thus fuelling the current rally. My advice to investors at this juncture is to stay invested in good stocks, but avoid leveraged positions in the market.
In the last two years, the market has witnessed three major crashes due to global factors. Don't you think the Indian market will continue to get impacted by global factors, thanks to FII dominance
It is true that global markets affect Indian markets, as we are part of the global community. Recent example is US Feds 50 bps rate cut, which sent global markets soaring. Although this is a knee-jerk reaction, it is quite natural. The rate cut has instigated a positive sentiment. Conversely, a negative sentiment can cause major crashes. However, from a long-term perspective, it's the countrys fundamentals that drive markets. Regarding FIIs, they are not dominant in our markets, with their ownership in the Indian equities still very low compared to our peers. The volatility we see during times of turbulence is just on back of the movement of hot money, which is normally short lived and we have to take it in our stride.
Compared to other emerging markets, where does India stand in terms of valuation and corporate earnings How attractive is the Indian market for foreign investors
On valuation front, currently Sensex trades at PE of 17xFY09E earnings (adjusting the strategic investments), with corporate earnings expected to grow at 15-16% per annum. On PE basis we might be expensive vis--vis other emerging markets, but it is justified on back of high earnings. Further, our corporates have a very clean balance sheet and are very low on leverage. Secondly, in spite of all the local issues and poor infrastructure they have reported good ROICs (return on investment capital) and an excellent return on equity (ROE). India is a safe haven for FIIs and offers great investment opportunities with good value and growth potential.
Now that the financial markets across the globe are closely integrating as never before, to what extent can Indian market escape from negative global cues and start reflecting the true India growth story
As we become progressively integrated with the rest of the globe, our markets will naturally feel the ripple effect of global markets. At the same time, we are becoming less exposed and dependent on other economies for our growth. Our exports are just 17% of GDP (while imports are 22% of GDP); we are a trade-deficit country, and hence, initially, we stand to benefit from this integration. I feel US and India are at opposite ends of the consumption cycle; while India is witnessing the start of an uptrend, US is on the verge of a decline.
Thus going ahead, the advanced economies will see lots of cost-cutting and a lot of value-added jobs will migrate to countries like India. This in turn will make our job markets robust and strong and will act as a catalyst to enhance consumption, further fuelling the robust growth in corporate earnings. This is a slow but sure process that will aid India to decouple from the US and European markets.