Consumer, pharma, IT to outperform over 1 yr: Credit Suisse

While this is just a temporary phase with the market getting excited because of announcements, Mishra feels that once the surge of inflows has stemmed, people will go back to earnings. That is when a lot of the rallies will start trending down again.

Also Read: Dimensions Consulting sees Nifty at 6000 by December  

"It is very hard to say if this rally is done. But yes, six months to one year from now, I think the market will again be focussed completely on how earnings are moving, how are fundamentals changing and we will see a reversal of the rally that we are seeing right now," he anticipates.

From a sectoral perspective, the outperformers, over the next twelve months, will be the consumer and pharmaceutical names, maybe even IT once the depreciation in the rupee has stemmed and started to reverse, he added.

Below is the verbatim transcript of the interview

Q: We have had a 10 per cent rally since early September perhaps on the back of news flow from New Delhi. Are you seeing this as a sustainable upmove?

A: No. We have recently put out a note explaining why India has been consistently seeing FII inflows for not just the last few months or last year but actually for the last 15 years. Its share of emerging market fund flows has been far in excess of its MSCI emerging market weight. This is just the other side of the coin of global trade flows.

There is a lot of capital getting pushed away from the developed markets, which is really desperate to get invested somewhere. India is among the emerging markets. India is the only one, which has raised its hand and said, ‘we can change things.’ So there is a lot of optimism outside India, far more than what you see here. FII investors that you meet outside India are quite excited about the prospect for change in India, which is reflecting in a lot of fund flows into India.

All that has been done so far, and even if the bills that have been proposed were to pass, there is unlikely to be any meaningful impact on fundamentals for the next several years. What the market is eventually going to move on is earnings and multiples. We have seen long periods in the past; to give you a perspective, from 1994 to 2003, India saw USD 50 billion of FII inflows in dollar terms and Nifty was unchanged.

Once this surge of inflows has stemmed, people will go back to earnings and they will go back to worrying about which power plants are going to survive, which steel plants will become NPAs and then you will see a lot of these rallies actually trending down again.

Q: You believe that this is just a temporary phase but the market got excited because of announcements. But do you think fundamentally higher levels or a rerating cannot be justified?

A: Yes, it is very hard to take a call on whether this is where we stop or this rally can have another few weeks to go. There are lots of things changing globally, which we must take stock of; QE3 is very different from QE2, QE2 was a specified quantum of capital to be injected into the markets over specified period of time. QE3 is potentially unlimited.

Various estimates take it to four-six years of USD 540 billion every year being pumped in by the Fed. Now all of that capital has to get deployed somewhere. It is very hard to say if this rally is done. But yes, six months to one year from now, I think the market will again be focussed completely on how earnings are moving, how are fundamentals changing and we will see a reversal of the rally that we are seeing right now.