Madhu Kela sees bull-run continuing, suggests sectors

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The year 2010 seemed quite upbeat with the markets responding in a positive manner-with a view that while there maybe corrections the markets would finally put in a good 2010. However, the last week of volatility or the last fortnight of volatility has led people to go back and reassessed their positions on whether this will be more of a turbulent year than it look at the start of the year.

Commenting on the road ahead for the markets, Madhu Kela Head of Equities at India's largest mutual fund house, Reliance Mutual Fund, said, in 2010, global cues would be the key drivers. "In 2010, the markets are going to be governed by what is happening on the globe rather than what is going to happen on India."

According to him, 4,500-4,600 was a significant level. "The market has been desperate for a correction-it is healthy for the markets-it was just looking for an excuse and it got one."

Kela is bullish on the pharma and infrastructure space. In infra, he favours power stocks. However, he is bearish on FMCG, bank and oil and gas companies.

Here is a verbatim transcript of Madhu Kela's exclusive interview on CNBC-TV18. Also watch the accompanying video.

Q: Do you think 4500-4600 will hold out on the Nifty?

A: It is very difficult to pin point a number. But what I would like to say is that if you look at it as a context, 2008 was a relative easy year to call because we were at 21,000 index and the valuations too were fairly stretched. So it was very easy to call that markets may fall. 2009 again was relatively easy year in the context because in March you still had 2600-2700 Nifty, it was easy to call the valuations are very-very supportive. In 2010 markets are going to be governed by what is happening on the globe rather than what is going to happen on India. I think on India front I am not unduly worried.

As we have seen there is nothing which is de-coupled in the world. Everything is couple at least in the short term so I think I would be very excited to look at individual companies if Nifty comes to 4500 or so. Those are the opportunities which one will have to look at in 2010 rather than relying on the broad market for you to make money. This is what I have been telling you.

Q: Is this an important level because a lot of people have been asking for some kind of a correction and they still maintain that the market is in a still good upward trend if 4500-4600 holds out this is no more than a correction? Do you think in that context that level has some significance?

A: I think it is a very significant level. I think the market has been desperate for a correction. Market is not obliged with a correction and all these reason of Greece and Spain, I do not think it has a very-very important thing in the context of the world but the market needed some of the other excuse to correct and it has obliged with a correction.

Now unless things really go ugly in the global market and this continuous gets into some economy like UK and there is a scare out there I do not think these levels should be broken. In one sense it is physiological a very important level because if you remember on the way up it has struggled a lot at this level and this was a index when the election result happened-it was 4500 then market corrected to 3900 and again on the way up it struggled at these levels and then finally broke out.

Q: You have some cash to deploy at around those levels in your funds?

A: We have around 8-10% cash across our funds so we have some cash to deploy.

Q: You speak to a lot of global investors, what is your sense of what has happened in the last fortnight, is it just profit taking in markets like India or is there any sense of panic at all?

A: I don't think there is panic but even the Dubai fiasco which was totaling up to USD 15 billion in terms of total quantum of problem sent a huge scare in the world. People have those bad memories. So anything which happens, people have a tendency to go in the sidelines saying let us wait and watch. But I don't think that kind of a scare at least people I speak to are contemplating.

Q: What is this couple of billion dollars which suddenly went out in a fortnight from foreign institutional investors (FIIs)?

A: When the Nifty was trading at a discount that is how this couple of billion dollar came, so it was mainly lot of arbitrage money and now Nifty went into discount and we have seen a lot of unwinding of those positions. I do not think there is a real serious directional selling which we have seen from very large investors even in India.

However, I must point out people are now when they compare India vis-à-vis valuations of other emerging markets, India is looking richly valued. If you ask me there are reasons for us to be richly valued as against even China or Brazil or Russia but I think that premium is what was giving people that discomfort.