Which sectors is Ridham Desai betting on in 2010?

Q: I heard you say a 20% upside from here. So you are saying at some point in 2010 the market would really get close to its all-time highs again?

A: Yes, in a bull case scenario it gets past its all-time high and will get into a new high. In a base case scenario, we come quite close to that. We will start flirting with the 2008 high sometime in 2010. That's what we think right now.                                                   

Q: What about midcaps or the broader market? Do you think it would be a narrow concentrated kind of a rally in 2010 or do you think the broader market actually starts participating and you see more and more stocks getting close to their all-time highs?

A: I would actual argue that this is going to be a broad-based rally in 2010. So I would expect the broader market to actually outperform the narrow market and make further gains. We have seen that happen over the past six-months at various points in time. The earnings cycle actually and the fundamental reason for this is that the earnings cycle, which is turning and usually when the earnings cycle turns the broader market tends to do a lot better because there is almost more operating leverage with smaller companies.

The number that I shared with the earnings growth is really the broader market earnings growth, which we are looking at around which is 25%. It's not the Sensex earnings number, so the broader market, which is actually cheaper than the Sensex and has faster earnings growth prospects, will stand to outperform in my view in 2010.

Q: So you are sticking to the view that this is another multi-year bull market that we have embarked on because some other people who are also bullish on the market seem to believe that its not so easy to call - as it was may be three years back when the last bull market was on? They feel that this could be a series of the boom/bust kind of cycles with 40% kind of rallies and sell-offs maybe punctuating the next 12-18 months?

A: That is a very tough question for me to answer. I am not too sure actually and I cannot be absolutely certain that we are at the start of a big bull market. But my gut feel and this is where my heart comes into play - I think we are dealing with probably the grandmother of all bull markets. But again it's very hard to paint that scenario. If I use my head then it seems all murky out there. Going into 2011, growth in the developed world is all set to slowdown. There is a big payback coming from what has been the huge credit pinch that the western world has created over the past several years.

There will be some impact on growth in India. We still have to do a lot of things in India. It's just not about infrastructure and tax reforms. There are so many other things that the government needs to do. So if you look at all those things, my head will tell me that this is it, 2010 make your money and go home.

But my heart tells me that India is on a breakout path. India is at an inflexion point in terms of growth. We have a population that's getting younger. We have a massive influx to our workforce that is going to happen over the next five-years. These are precisely the factors that create a bull market.

So even while the globe is not supportive and that is why all these people that you mentioned who are not confident about this not being the next bull market - they are looking at the world and saying this is not the environment in which equities do well.

India is clearly standing out. The idiosyncratic factors driving India are pretty much in place. So, there is a case for a bull market in India whereas its not there globally. We are torn between these two scenarios. My heart tells me that maybe this is the 'grandmother of all bull markets'.