Sep 07, 2010, 03.34 PM | Source: CNBC-TV18
The market over the past few days has been relentlessly marching ahead. Does this indicate shaping up of a bubble blowout? "Maybe," says market analyst Sangeeta Purushottam.
Citing two possibilities she says, ďIf foreign liquidity continues and the market sustains its current level, then a lot of money that has been waiting on the sidelines may start to come in. This would lead to a stage where the market from the being fairly valued would turn expensive, resulting in huge selloff. However, if the markets tank on account of some event, then we will start rallying again."
Below is a verbatim transcript of her interview with CNBC-TV18ís Udayan Mukherjee and Sonia Shenoy. Also watch the accompanying video.
Q: No major correction barring those small 100-200 points pullbacks on the Nifty and we are relentlessly marching ahead. Do you think we could be shaping up for a bubble kind of a blowout?
A: Two possibilities exist. If we continue to see strong foreign liquidity as we have seen in the last few months and the market sustains at these levels, then a lot of money which has been waiting on the sidelines, may just start to come in because of a left out feeling. So yes, you could get to a stage where the markets from being fairly valued or thereabouts start to get expensive.
The call is on liquidity and thatís a tough call to take, so that possibility exists. The other possibility is that there is some event or something happens which takes the markets down and then we start rallying from there onwards. Being in the middle of the range in terms of valuations and in absolute terms albeit at the higher end of the range, itís really a difficult call at this point in time.
Q: How does one deal with the global setup at this point? The last couple of data points have been bullish but there is till lot of turmoil. The Chinese policy seems to be hawkish and dovish, and mix of both of that. The US markets as well there is an indication that GDP growth might not be that great. How does an Indian investor deal with all of this?
A: The global news flow will remain mixed. You will see some positives, some negatives and thatís what the market is going to be dealing with. One has to be prepared for some amount of volatility that this kind of a mixed news flow will cause.
As far as the Indian investor is concerned, he is in one of the most comfortable situations in the world because the economy itself is doing reasonably well. What he has to be wary about is not getting caught at the higher end of valuations.
My sense is where we are right now is okay for long-term investors. If you are willing to ride out the ups and downs, if you can get in at corrections-great, but you are not too badly off, even at these levels, if you are investing for the longer-term.
Q: Do you think people will actually sit it out? They might have been waiting for a correction for many months now and itís just not a obliging. Do you think at some point the towel will be thrown in and they will come in?
A: Yes, I think if the money keeps coming in and the market shows no signs of correction thatís possible, you will see domestic money following.
Q: In the rally that we have seen in the last couple of months there has been a lot of sectoral rotation. It started with autos, then with IT. But at this point in time, the valuations for most of these sectors look stretched. Going forward what is the one pocket of value that you see?
A: You are right. Most of the sectors in some ways have been played out, which is why you are seeing action in some of the laggard sectors. There has been some interest coming back in real estate and Reliance showed some move, so you seeing a bit of that happening.
On a longer-term basis, the financial sector still looks okay although itís had a fairly strong performance but as the economy grows this sector is bound to do well. Whatever is linked to the economy, over a long-term will do well. At some point companies will start performing, as the order book start translating into actual numbers. Whatever is linked to the economy will continue to do well.
Q: What about metals? Yesterday Tata Steel led the rally. How would you position yourself in steel names given all this talk of Chinese production curbs?
A: Metals still remain very much a global call and it reacts to these news flows. The domestic situation in many of the companies is better if they are expanding volumes. You have a volume story playing out in certain stocks. The real play in metals will come when there is some level of conviction that the global markets will rally. Itís a sector which if you want to sort of be early, you could get in when things arenít looking so good. Thatís the key play there. Everything said and done, global prices do determine how the metals get priced domestically.
Q: Would you expect to see lot of buying in the telecom sector as well because of its beaten down nature?
A: I think we have already seen a fairly strong upmove in Bharti Airtel which is the favourite in this sector. Itís moved up from levels of Rs 260 odd to about Rs 340 levels so that move has actually already happened.
Q: With the kind of situation that we are seeing globally, do you think a lot of the hot money will now be attracted to Asian economies like China and India, purely because of the lag of an economic visibility in the developed markets?
A: Thatís bound to happen, whether the flow of money increases immediately or that happens with a lag, when there is a clear sense that there is going to be further easing in the West remains to be seen. If we leave the major term aside and look at a slightly longer period, the share of money coming into the Asian economies and particularly the faster growing ones will increase over time.
Q: So far midcaps have done well but if you do get the kind of allocative money which sometimes comes in when global liquidity is abundant, do you think it could fuel largecaps like we saw yesterday like a Rs 1,000 crore of FII money came in and the Tata Steel , ICICI Bank , the Reliancesí of the world moved and much more than midcaps?
A: If it is a broad country allocation just coming in initially, it will in the first instance move the largecaps more.
Q: The one stock which has been left out of the largecap party over the last couple of weeks is Hero Honda ? Would you be worried about what is going on and or do you think itís a buying opportunity?
A: No, I think I would be little concerned. If you look at Hero Honda, unlike Bajaj Auto and TVS who have their own internal R&D and have been developing products on their own, Hero Honda has been almost completely reliant on Honda for technology and products. If there is any issue with that relationship, it will impact the pace of new product introduction till such time that the company adjusts to that. I think if there is no clarity to that I would worry about it.
Q: Would any of these public sector undertaking (PSU) banking names interest you at this point in time? Agreed valuations are not looking so good for the bigger ones but how are some of the smaller banks doing in terms of valuations and outperformance expected from here?
A: I do not specifically track the smaller names. The sector as a whole will do well. I would look at banking as something which will give at least market or market plus returns. As we move along even the smaller ones, the valuation gaps which are there will narrow over a period of time. Thatís a broad call but itís a longer-term call. I do not expect this to happen over a short period. Over a period of a couple of years that will begin to happen.
Q: How does yesterdayís development affect Reliance Communications as a stock and its prospects in your eyes?
A: Basically, the uncertainty around the stock and its ability to cleanup its balance sheet just continues. One cannot take that whatís happened is necessarily positive for the stock.
A: Anything which gets thrashed a lot offers an opportunity to bounce back because a lot of the negatives get priced in. It could be interesting, but the call on metals to me is something which is related to the global economy. Unless and until I am convinced that thatís on track, I would just be cautious.
Q: Would you back any of the capital goods/infrastructure stories?
A: I am relatively a lot more positive on capital goods than I am on infrastructure. I feel that the core returns or the return on equities (RoEs) are much higher in the capital goods sector than infrastructure. I am a lot less bullish on infrastructure than many other people seem to be.
Q: Where do you stand on early stage power developers, which do not have large projects up and running, but the promise of it coming in the future, like Indiabulls Power which is up today, Adani which is buzzing. How would you position yourself in those names?
A: I would be very company specific and look for a lot of comfort in the company. I think we have been through enough cycles in the market, where we see sectors going up, based on future performance or future promise and a lot of it either gets delayed or some of it just doesnít come. I would approach it with some degree of caution and look at it on a very company specific basis.
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