Professional investor Sangeeta Purushottam says that the market that has become increasingly dependent on liquidity will not be able to offer high returns due to uncertainities in the state elections.
Purushottam adds that it would be a surprise if the returns for the year exceed 10-15 percent. "Returns will be broadly in line with growth in earnings with the hope that next year there will be some level of de-rating in the price–earnings (P/E) ahead of the uncertainty of the elections," she told CNBC-TV18.
Below is the edited transcript of the analysis on CNBC-TV18
Q: Do you think the scare in the market after the Budget has passed?
A: It may have. It is a little hard to say. However, liquidity turning supportive is adequate indication of diminished market fears. I was a little taken aback by the fall because the Budget was not as bad as the market reaction seemed to suggest. In fact, there were quite a few fairly positive features in the Budget.
Q: The carnage in the midcap segment has turned out to be a bigger problem for the market. Do you think some calm has returned?
A: I think midcap carnage was caused by a lot of funding issues including pledged shares. The midcaps posted a fairly good performance going into 2013. From current levels, I expect companies with strong earnings growth will bounce back. So the midcap space will become more diverse but there will be some revival only when the fundamentals are strong.
Q: What is the best way to approach the pullback- is it best to go back to high beta or opt for defensives?
A: It is reasonably clear how the whole year is going to pan out. There is hope on the macros. The year 2012 was peculiar because despite the increased concern on macros, the market did fairly well. However, the micro-economy is going to take time to catch up. So the results scenario in 2013 will remain fairly mixed with intermittent shocks.
But strong fundamental will dominate not only in sectors like consumer-goods where valuations have become very rich, but companies with reasonable valuations will form a bulk of the portfolio.
There will be a bit of a nibble in the cyclicals. The environment is not conducive for investors to take whole bets and change the complexion of their portfolios completely just because of the way the whole political scenario is going to look.
The state elections towards the latter half of the year paving the road for the general elections next year will creates it own the uncertainties. Therefore, a certain defensive element in the portfolio will remain.
Q: Infosys bounced back to Rs 3,000 on Thursday but the buying seems to be based on large deliveries. Do you think technology will continue to move higher?
A: Technology could be seen as one of the defensives this year. In absolute terms, the multiples are not too high, technology companies have begun to generate cash and there is hope that the entire position in terms of growth in sales will be little better than last year.
So I think investors looking for defensive sectors will witness a shift from sectors like consumer-goods to IT. It also provides a hedge against further depreciation of the rupee.
Q: A few PSU metal offers are to hit the market such as NALCO and SAIL. What are your views on the metal-segment?
A: I would remain skeptical on metals for a while. There are other segments of the market for investors. The metal pack could remain fairly volatile through the year. So unless it’s a very long term call, I would be sceptical.
Q: What's your market prognosis for the next few months?
A: For the moment as long as liquidity remains supportive, there is a case for the market to head a bit higher. However, I don’t think the situation will remain through the year. I would be surprised if there is a return for the year of more than 10-15 percent. Returns will be broadly in line with growth in earnings with the hope that next year, there will be some level of de-rating in the price-earnings (P/E) ahead of the uncertainty of the elections. So it is going to not be a year of very high returns for the markets.