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Moneycontrol » News Center » Markets » Expert & FII Outlook
Short-term correction in markets expected: Mirae
Published on Thu, Jun 07, 2007 at 11:11   |  Updated at Fri, Jun 08, 2007 at 11:11  |  Source : Moneycontrol.com
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Deepesh Pandey, Deputy Chief Investment Officer of Mirae Asset Global Investment Management (Asia), feels that interest rates may remain firm and will impact fund flows in emerging markets. He said the markets look fairly valued for the time being though a correction in the short-term is expected.

 


Pandey is underweight on autos for the last six-to-seven months. He is still positive on steel, though underweight on other commodities.

 

Excerpts from CNBC-TV18’s exclusive interview with Deepesh Pandey:

 

Q: How have you read the kind of interest rate concerns that are now developing globally and how that might impact money flows for markets like India?

 

A: I think these are genuine concerns. Expectations of an easing of rates by the US Fed have now gone away and there are concerns that interest rates may remain firm for some more time. This should impact fund flows into emerging markets including India. In India, we have seen a firming up of interest rates in the last 6-12 months. I think it’s a very genuine concern for the markets.

 

Q: What is the call on the largecap space now as compared to midcaps? There have been concerns about valuation overheating and perhaps even an earnings downgrade for some sectors?

 

A: In the last few days, we have seen a huge run up in largecaps and midcaps. The overall aggregate valuation for the Sensex, which is almost 17-18 times, looks fairly valued for the time being. This, keeping in mind the paper supply, which will come up and the fact that companies are being opportunistic in terms of raising funds.

 

I think India has a very wide universe of companies, which includes midcap and smallcap companies, and there one can still find opportunities.

 

Considering that one should expect a short-term correction in the market, midcaps should be more vulnerable. Over the last 6-12 months, I think that the midcap and smallcap segments still have lot of interesting opportunities.

 

Q: How do you read the interest rates situation in India? Concerns are building up that because of ample liquidity RBI might tighten again soon, is that your expectation as well?

 

A: I would agree. At present, this is a kind of dilemma for RBI as it has to handle the excessive liquidity while intervening in the forex market to prevent the rupee from further appreciation. The rising Indian unit is hurting export oriented sectors and that constitutes a very large portion of the Indian corporate sector earnings.

 

Logically, one should see a CRR hike, which is what is expected and whenever that happens it will obviously have an implication for interest rates. May be that’s something which the central bank wouldn’t want to happen and that’s why there is some kind of delay. But a CRR hike is possible and that should obviously impact interest rates. This will be another negative factor, which will keep the market on hold for sometime.

 

Q: How would you position yourself on the rate sensitive sectors like public sector banks or autos?

 

A: We have been underweight on autos for sometime to come since the last 6-7 months. The auto sector has been impacted by higher interest rates. We have seen negative volume growth in the commercial vehicle and two-wheeler sector. The automobile sector is clearly avoidable for the time being.

 

I think government-owned banks still look okay on valuations in terms of price book multiples. Private sector banks having seen a huge run up and are fairly valued right now, expect for stocks wherever there is insurance. There could be an upside due to insurance valuations.

 

Q: What’s your call on a couple of commodity spaces like metals and steel in specific, and cement?

 

A: In cements, one is clearly seeing an oversupply situation building up in the second half of FY09. There is a very limited scope for re-rating of these stocks. A good time to buy these stocks would have been around 3-4 months back when there was excessive pessimism. We are seeing a smart recovery in stock prices. At this point of time, looking at various valuation parameters including asset valuations, the stocks look fairly valued. We don’t see much upside in these stocks, keeping in mind the oversupply situation, and the market will start discounting the oversupply situation.

 

In terms of other commodities, we have been fairly positive on steel and have played the steel sector well. Steel stocks have done extremely well returning 50-100% in some cases. This is one sector where we remain positive but other commodities besides steel are already seeing fairly high prices. Typically, these prices are very volatile and therefore the underlying stock prices tend to be very volatile depending on how these commodities move. We have been underweight on these stocks. In any case, there are company specific issues when you talk about the non-ferrous sector in India.

 

Q: How high is institutional interest in DLF and ICICI Bank and are you looking to subscribe to either?

 

A: Institutional interest seems to be very high as per the feedback one is getting from merchant bankers. Real estate as a sector in emerging markets like India looks very attractive over the medium- to long-term horizon. There will be a new set of investors who will be investing in these issues.

 

ICICI Bank being the leading private sector bank in India, with a strong and fast growing insurance business, has lot of upsides in terms of valuations. I think the bank should see very strong interest from institutional investors. Both these issues should see good response as they are sector leaders and both have very strong stories over the medium-term.

 

Q: Which midcaps have you been accumulating in your fund because midcaps have outperformed in last few weeks?

 

A: As I said earlier midcaps have a very wide universe. There are a lot of opportunities and one has to be stock specific. Going forward, few midcap stocks in sectors like engineering, industrials and auto ancillaries offer very attractive potential. Beyond that it’s more stocks specific. One has to keep in mind the liquidity situation in these stocks and it has to be a function of liquidity in a particular stock also. Valuation and growth story-wise some of these names look very attractive.

 

Q: You have been sitting on a slightly high degree of cash in your India portfolio?

 

A: We don’t try to time the market by wearing the levels of cash, we tend to remain fully invested. It’s just that we are seeing lesser opportunities and our funds tend to have a more largecap focus. We are seeing less opportunity in the largecap space and so we are running at slightly higher levels of cash. It’s not due to any views in the market but more because we are not able to find as many largecap stocks where we can deploy all the funds.

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Tags: Deepesh Pandey, Mirae Asset Global Investment Management (Asia, emerging markets, steel, CRR hike, auto sector , Private sector banks , DLF, ICICI Bank
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