Hemang Jani, Senior Vice President, Sharekhan said there is a possibility of a pullback in the markets. However, considering the macroeconomic environment and the possibility of a further rate hike, there may not be a sustainable recovery in the market, he stated.

“For the next couple of months, things are going to be difficult and one would see more volatility. But from a 6-12 month perspective, things are looking okay.”

Excerpts from CNBC-TV18’s exclusive interview with Hemang Jani:

Q: What is the sense of yesterday’s mayhem? What are you advising clients to do?

A: The market has corrected 17% in the last 15 days. There is definitely a possibility of a pullback. But looking at the overall deteriorating macroeconomic environment, various indicators from export growth to the overall fiscal situation and the possibility of a further rate hike in this kind of an environment, one should not be expecting a sustainable recovery in the market.

So, for the next couple of months, things are going to be difficult and one would see more volatility. But from a 6-12 month perspective, things are looking okay.

Q: What is the advice for a retail investor or an HNI who doesn’t trade too often? Would the advice be to pick up any bargains at all? Are you confident that you are going to get much better opportunities for a reasonably long period of time?

A: Whether you are a retail investor or an HNI investor, if you have a one-year perspective, valuations definitely are looking attractive at 13 times forward P/E. One has to consider the fact that because of high crude prices earnings will take a hit of about 7-8%. Even after factoring-in an interest rate hike of 50-75 bps, people are still looking at 960-980 kind of an aggregate EPS for the Sensex next year.

That makes the valuations at about 13 times without adjusting the embedded value. So, I don’t think there is going to be much of a problem on that front. But in an environment like this, equity as an asset class does not tend to do well.  Globally, things are not looking great. The UK housing data was not good. There is a fear that you might see interest rates moving up. Obviously, the data has been mixed and you cannot expect any major recovery happening in the short run.

As long as commodity prices continue to remain high, interest rates will tend to remain firm. So, in this kind of an environment, equities as an asset class will not perform well.  One will have to bear with the volatility till such a phase lasts.

Q: What would be the length of that phase as of current data, because there are a lot of economists and strategists who believe that perhaps FY09 is not really the worst year, and the impact of inflation and interest rates will really be felt in FY10? One might still scrape through this year since most of the money and material is already in the bag. If FY10 is the question mark, then are we looking at a slightly longer period? What do you have in mind in terms of the lean phase?

A: The lean phase for our markets should not be more than 2-3 months. We will have Q2 numbers out in the next 2-3 weeks’ time. That will give you a fair bit of idea about where we are heading.

By the end of this quarter and probably another 2-3 months, we will have a bit of clarity about the growth numbers for the next six months or one year.

Once we have clarity, there will be a tendency to feel more comfortable putting in money. At this point, because of that uncertainty, people are not very comfortable putting in money.