Mkts at fag end of bearish phase: Bharti AXA

Prateek Agrawal, Head of Equities at Bharati AXA Investment Managers feels that in the worst case, the market may go down by 15% - 20% from these levels. He said that the markets are probably at the fag end of the bearish phase in terms of the correction from the top. He added that after this kind of correction we may see a period of sideways movement. 

Excerpts from CNBC-TV18's exclusive interview with Prateek Agrawal:

Q: How do you look at the events of the past one-month at stock markets? Do you think a bottom is in place, at least for the next 6 months?

A: Valuations are at very nice levels. In the worst case, one can expect the market to go down from these levels by 15%-20%. If that happens, then the valuations net of imbedded value would be the worst that Indian market has witnessed between the year-2000 till date.

In 2002-03 the market saw a valuation of around 8 times the current years earnings. Net of imbedded value had reached those levels. That is the basis of saying that we are probably at the fag end of the bearish phase in the market in terms of the correction from the top.

After this kind of correction we may see a period of sideways movement. An upward trend could recommence only when global financials rebuild their balance sheets and global capital flows recommence. That will take at least 2-3 months.

Q: Do we understand from this interpretation that long time players like Insurance companies will not be in any hurry to come in and pick up stocks, they will have plenty of time?

A: That is the sense, they should not be in any hurry to come and buy in the current markets. Markets will be volatile. There is a reasonable degree of news that the markets have to digest in one-two month time frame. So markets will be reasonably volatile and one can pick and choose their time to get into the market.

Q: So wherever you have the headroom, would fund managers like you prefer to go to money market mutual funds or any other fixed income categories? What would be your asset allocation?

A: At this point in time for an investor who has a two years plus kind of investment horizon, I think the risk reward is too much in favour of equities. When markets were at 20-21K the most bullish guys would be indicating 15-20% of an upside form those levels over a period of a year. At these levels the most bearish guys would be indicating something similar on the downside again in over a period of a year. Hence, on the risk reward perspective equities stand out at this point in time

Q: So basically you are saying that you would rather be in equities and there would be no rush towards money market instruments?

A: Yes.

Q: What is your view on the steel sector? Tatal Steel and Sail are down in today’s trade on a day when Sensex is up about 300 points?

A: Steel companies in India have seen their prices crack on account of various price caps that have been imposed on them domestically etc.

If one looks at the price performance of the Indian Steel companies’ vis-à-vis some of the global steel companies, this sector has under performed quite significantly in India. So, while steel prices maybe peaking out globally, valuations in India already reflect most of that. So there is a reasonable degree of comfort in that.

However if steel prices tend to move down a bit, then the sentiment for this sector would not remain as positive as it is today. However on a longer-term basis one should still be positive on steel.

At this point in time if one has to take a call whether one needs to be only in the commodity space or spaces like capital goods, which will benefit if commodity prices stay where they are or they move down then my call would be that capital goods space provides better risk reward versus commodity space.

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