May 02, 2012, 04.10 PM IST
Global issues will take centrestage in the coming months, dampening sentiment, and that could throw up some interesting opportunities for equity investors, feels S Nagnath, President and Chief Investment Officer, DSP BlackRock Investment Managers.
Last week, rating agency Standard & Poor’s downgraded Spain’s ratings by two notches, saying the government’s finances could worsen further. This has turned the spotlight back on the debt crisis in the Eurozone just when it appeared that the second round of liquidity infusion by the European Central Bank in February had eased problems somewhat. Next week, results of the elections in France and Greece will be out, and that will have a bearing on the broader plan to defuse the Eurozone debt crisis.
Global issues will take centrestage in the coming months, dampening sentiment, and that could throw up some interesting opportunities for equity investors, feels S Nagnath, President and Chief Investment Officer, DSP BlackRock Investment Managers. In a free-wheeling chat with Moneycontrol.com, Nagnath shares his views on issues, sectors and asset classes.
On factors that will drive sentiment near term: The Eurozone crisis has returned centrestage, and could dampen sentiment for the next few months. The other key issue is crude prices. Domestically, there is GAAR (general anti-avoidance rule) that is causing uncertainty. Hopefully, there will be some clarity on that shortly and it should put to rest the concerns of foreign investors. You could see the market consolidating for a while and during that phase there will be some good opportunities to increase exposure to stocks.
On growth, inflation: GDP growth this year should be around 7% this fiscal, and that is still a good number in the global context. I expect the consumption story to hold out good. I expect inflation between 6.5-7.5% this year, as the base effect kicks in. Also, if the monsoon is good, (as predicted by the Meteorological Department) then food prices should come down. I expect capex activity to accelerate in the latter half of the (financial) year as many of the earlier infra projects enter the execution phase. Overall, the second of the year should be better in terms of economic activity.
On corporate earnings: The results season so far as been OK, broadly in line with expectations. For this financial year, corporate earnings should be around 13-15%.
On sectoral biases: We are bullish on banks and financial services. As rates remain stable and economic activity picks up, this will be the first sector to benefit. We are bullish on infra and capital goods as we expect the capex spending cycle to pick up. We are positive on pharma as it is one sector that has always shown resilience in an uncertain market. In the consumer space (fast moving consumer goods) there appears to be too much optimism. Stock prices have risen sharply, and will consolidate for a while. We are not bullish on commodity stocks. Our view is that they will remain soft for the next few months as investors are still divided on whether global growth will slow down or revive. We are neutral on technology.
On gold: Because of all the global quantitative easing that is going on, at some point global inflation will be much higher (than what it is right now). I think gold should remain in a reasonable uptrend. There could be short, sharp corrections intermittently, but the broader trend will be up.
On interest rates: At the short end, rates have declined and now stabilized somewhat. I don’t see them falling sharply from here. The long term rates (government bond yields) should be more stable, in the 8.50-8.78% range.
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