Apr 15, 2013, 04.50 PM | Source: CNBC-TV18
The worst of current account deficit could be past, says Ridham Desai, managing director, Morgan Stanley.
Ridham Desai (more)
MD & Head of India Research, Morgan Stanley | Capital Expertise: Equity - Fundamental
In an interview with CNBC-TV18, he says the market could be under pressure near term, but will recover going forward, led by improving earnings growth a pick up in corporate investments. He does not see any currency risk to the market, and is of the view that global liquidity is in favour of the Indian market at this stage.
Desai is penciling in a 15 percent earnings growth in the broader market, comprising midcaps and small caps.
Desai is bullish on the IT sector, as he feels valuations are attractive. He expects the sector to recover in the second half of the current calendar.
Other sectors Desai is bullish on include banking and energy (oil). He expects energy companies to surprise on March quarter earnings. Desai is bearish on power utilities and pharmaceutical companies.
Below is the edited transcript of Desai's interview to CNBC-TV18.
Q: It has been a difficult phase for the market since the start of this year. Are you expecting more downside from here?
A: It could happen in the short-term. However, if I reflect back on the start of the year, we were worried about the level of Foreign Institutional Investor (FII) flows. But the extent of the fall has exceeded my expectations. I would have expected the Nifty to correct 200-300 points at any given point in time, but we are now well into 600-700 points of correction. So, the downside has certainly exceeded my expectations. We did have the risk of FII flows being too high, i.e. FIIs were over-owning this market. The leading indicators that we track for equity markets are all pointing for positive returns from equities. So, not withstanding some short-term volatility, it does look like we are back to very attractive levels and the risk reward ratio is firmly in favour of equities.
Q: How do you approach IT now in the light of what you have heard from Infosys ? What would you include in your model portfolio?
A: We are marginally overweight technology and we will continue to be that way. The valuations look attractive. I do not think the environment is that bad. We may go through a soft spot in global growth this quarter, but things are looking up in the second half. So, growth in the world will be a little better. IT is not such a bad space to be in for the rest of this year.
Q: Morgan Stanley is perhaps the only brokerage that has a Rs 185 EPS for FY14 on Infosys. That is very different from what other people are talking about-Rs 160-165. How do you justify it?
A: I will not get into the specific forecast on a particular company, but as a general theme, we see that there is a fair bit of operating leverage in the IT space. The bench rates are high which means that if there is a little bit of a growth in revenues, it can lead to an outsized growth in profits.
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