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Frontliners to rally further, midcaps won't: Morgan Stanley

Published on Tue, Sep 08, 2009 at 14:16 | Source : CNBC-TV18

Updated at Wed, Sep 09, 2009 at 09:31

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Narayan Ramachandran of Morgan Stanley says that the industrial production (IIP) data as well as economic indicators are showing positive signs, which is helping the markets move higher. "They have broken the upside range," he says, adding that the markets can rally another 10-15% from here. However, he feels that the mid-caps may not outperform going forward.

Ramachandran says he would not buy commodities for the long-term. "Gold remains hedge in every portfolio."

On the hardening of interest rates, he says, equity markets are less concerned about interest rates. "They are a little less directly affected by increasing rates."

Here is a verbatim transcript of the exclusive interview with Narayan Ramachandran on CNBC-TV18. Also watch the accompanying video.

Q: Since you have been spending so much time with bankers today, let me start off with the first concern that markets have had, which is about rates hardening and the potential collateral damage on equity markets. Is that a legitimate concern?

A: Rates hardening is always a legitimate concern for equity markets. But I don't think this is on any new information. I think it is the same old story about the deficit being high as well as the fact that the yield curve needs to be steep reflecting probably a better view on the economy. So, I don't think that is a brand new information driving thing. Therefore I think the equity markets are a little less directly affected by increasing rates than it might otherwise have been.

Q: We are standing at 2009 highs. It seemed like a breakout yesterday as well in trade. What have you made of the way the market has moved so far and of talks that flows are suddenly gushing in again?

A: Flows are always contemporaneous. So, I don't hold store by flows. When things are good, flows come in and when things are not good flows don't come in. So, I don't use it to justify what is going to happen in the future. But I do think the break of economic news, not only in India but everywhere in the world is actually quite positive, and perhaps surprisingly positive at least in the short-term. That is really why I think markets have done very well of course but after the pause that we have had for a couple of weeks now, it seems once again to be doing well.

Clearly, the IIP data and other such leading indicators of economic activity are doing quite well around the world and hence markets are rallying.

Q: Does it read to you at this point that markets are poised for a breakout and to move into a higher range or would you not make that assumption quite yet?

A: I think when we had the pause for a little while there last couple of weeks; I would have said there is an equal probability of either a breakout or a breakdown. The breakout possibility coming from the fact that the industrial activity numbers as I just spoke about was quite positive, a breakdown possibility coming from the fact that people were still worried about sustainability. I think for the moment anyway the good economic news is one, and I suspect we are out of the trading range that we were in for a few weeks and things will move upward. That is my guess anyway.

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