Crude, inflation to keep mkts volatile: Mirae Asset Invt

Neelesh Surana, Senior Fund Manager–Equities, Mirae Asset Global Investment India, said the volatility in the market could continue and would be driven by key data points related to crude prices and inflation. He told CNBC-TV18 that he is positive on aluminium, IT and selective pharma apart from logistics and shipping.

According to him, crude would impact the economy in a medium to long-term. As per their study, a dollar increase in crude prices should theoretically increase the inflation rate by about 25 bps, he added.

Excerpts from CNBC-TV18’s exclusive interview with Neelesh Surana:

Q: How are you looking at this market now? We are seeing ranged movement in a 3,000-point range for the Sensex. Do you see these ranges getting broken at all? Do you think we are going to have 2008 within these limits?

A: As a fund house, we are not likely to comment on the range or market levels and whether it could break the previous high or low. After the recent upturn in the market, valuations are at a broader level in the fair zone. The index is trading at about 17 times FY09 earnings without taking earnings of embedded assets.

If we factor that, it is trading at closer to 15 times, which is a sort of a reasonable range. Volatility in the market could continue and it would be driven by key data points, particularly related to the level of crude prices and inflation.

From a portfolio perspective, we are taking a market neutrality strategy and basically participating in high conviction ideas. As we live in challenging times, stock picking would make differentiated returns.

Q: Where are you looking out for stocks at this point in time or in the near-term, given the kind of volatility we are seeing at this point? Are you going to be looking at a broader universe for value picks or is there still a pocket of value left in the frontliners?

A: Crude is clearly one of the key concerns. We are looking at businesses that are relatively less immune to crude prices, interest rates and inflation. We are particularly positive on mineral-related businesses and integrated mining companies.

There are certain business models where ferrous businesses along with merchant power, is available. We are positive on aluminium. Among the broader sectors we are positive on IT and on pharma selectively. In addition, we are selectively positive on niche businesses like logistics and shipping at this point in time. This is our medium-term call.

Q: How are you looking at the economy a year down the line? Oil prices will have to be passed on sooner or later and it may be done by a new government. But the pressures of inflation cannot be kept away from the economy for too long. For a slightly longer-term view, do you think these are levels from which you will see a significant rise even 12 months down the line?

A: Clearly, crude is the factor that would impact how the economy pans out in the medium to long-term. As per our study, a dollar increase in crude prices should theoretically increase the inflation rate by about 25 bps.

But in India the transport fuel is not fully passed on. Oil under-recoveries will increase by almost two times in ’08-’09, to a level as high as Rs 1,60,000 crore. That would clearly put pressure on current account deficit, impact inflation and the growth rate.

But as per our analysis, the economy will still grow at around 7.5%. The tailwinds may not be strong, but there are enough opportunities on a stock specific basis.

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