Mkts likely to bottom out close to Budget: DSP ML

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The markets, Jyotivardhan Jaipuria, Head of Research at DSP Merrill Lynch, on the sideline of its fourteenth Annual India Investor Conference, says are likely to bottom out close to the Union Budget. He further feels that the markets will give flattish returns in 2010. "The correction in the market is triggered by China tightening measures," Jaipuria says.

Further, commenting on the expectations from the forthcoming Budget, he says there are concerns on increase in excise duty during the Budget. "The investors are looking at reforms in the oil and gas sector and in the goods and service tax policy."

Here is a verbatim transcript of an exclusive interview with Jyotivardhan Jaipuria on CNBC-TV18. Also watch the accompanying video.

Q: Tell us a bit about this investor conference. What themes will you explore? From the initial feel, what is the mood of the investor?

A: We are trying to portray the growth story of India and why the growth story will continue over the longer term. In morning sessions we were focused on infrastructure theme. We had officials trying to reassure investors that infrastructure will happen and the implementation is not going to go away. We are trying to showcase the investors.

Q: What is your sense in terms of the consumer theme because we had a couple of conferences recently? The theme has been growing and emerging India and various consumer themes. Is there still enough alpha and interest amongst investors in some of the bigger companies? You have 59 confirmed companies and they are pretty big in terms of growth stories. Is it more the smaller themes and the smaller stories? You had a listing for Jubilant today, another listing of Cox and Kings a couple of weeks back that has been seeing significant premium. Does the alpha still exist in the big boys or is it now shifting focus on the smaller guys?

A: A lot of the consumer staple companies have had a run and are not looking cheap. Hence, that is one thing which investors are wondering. Over the last few years, most people played it through the telecom companies. So lot of people brought the telecom companies and played the consumer theme. Now people are looking at how to play it. Our view is that the smaller companies offer better opportunities than the bigger companies in terms of growth prospects as well as how they are valued. The other space which people are looking at the autos but that has had a great run over the last one year. There are concerns about the excise duty increase in the budget. Hence, that is something which people are not at the moment adding more money to.

Q: One of the things you will showcase is that infrastructure is happening in India. Do you think that there is more skepticism that has been warranted? Is infrastructure one of the themes as a house that you are selling would you be willing to talk some stocks about which you think are still under priced?

A: We can't talk on particular stocks but infrastructure is one of the stocks. Infrastructure is one of the themes which investors are confident on. Over the next ten years, we will see lot of activity happening in the infrastructure. The worry which investors have is the implementation has been much slower than what people thought initially. To that extent, there is the hope that with a stable government in place, they are hoping that the implementation happens much faster whatever reforms are in slowing the infrastructure implementation gets taken care of. We think that infrastructure is a sector which will do well over the next few years.

Q: You have few Indian metal companies attending your conference as well, how do you sense investors are approaching now because I was just reading your report the key earnings surprises have come in the lot of these metal stocks and steel stocks primarily in India have a degree of cyclicality as does that domestic demand as well?

A: Metals globally are under pressure because one thing which has triggered the market correction has been china and their tightening of monetary policy. Hence, not just in India, but across the world, metals stocks have come under pressure. This is a sector which is not as much Indian as probably most other sectors are. This is more of a global theme. For metal stocks in India, China is probably as important for them as the Indian demand. That is where focus of most people went to invest the stocks.

Q: As a house, are you reading the kind of sell off we have seen across equities and even commodities probably since the beginning of the current year? Is this correction going to last longer? Do you expect more accidents like Greece to continue to keep investor moves spooked? Are you looking at every downturn also as a buying opportunity? Do you think the downturn is going to be pretty stiff from here?

A: When we stated the year, we were one of the few people saying that the markets will correct before the Budget. This is the year where the markets would give a very flattish return with the first quarter not being good and the second and third quarter being better. When we look at the correction, we have to keep in mind what happened last year. The markets have had such a run that what we are seeing is just a small technical correction from that run. This is the year where the market consolidates. So the absorb the whole gains what we have seen last year. Nothing really changed our view on that. We are still saying that the markets would probably bottom out close to the budget and then we might get a slow upward move with the second and the third quarter of the year.

Q: You are interacting with a lot of investors there. What is your sense on expectations when it comes to the Budget? What about some caution on autos but in terms of the positives what is the key expectation?

A: What people are looking forward to is that most people recognize that the growth has been strong. Hence, you need to take back some of the fiscal stimulus we gave last year. They are looking at one of the measures by which the government can now start controlling the fiscal deficit because the last year fiscal deficit was high and most people understood it. Now people want some measures where there is control. Hence, one would be that roll back measures.

The second would be what happens on the public sector disinvestment and that is one way that a fiscal deficit can really be controlled. Third is in general what the government approach is to reforms whether it's the oil decontrol where people are hoping something gets done there and some steps are taken. People are more looking at the reforms and how the government is going to approach to the reforms in the next few years.

Q: Just your intangible takeaways from what you have already spoken and seen in your preparation in this conference, do you see larger and newer investors coming into the fray, do you think that considering a long spree or a long period of downturn that one sees in the developed economy when the up tick happens the amount of funds that is coming into India will be larger than what we have seen even in 2007? Is there any tectonic shift at all on the kind of mood?

A: We are already seeing that. Over the next five years, if we take a five year horizon we are going to see merging markets. India within emerging markets have a bigger share of investor portfolio what was there even till 2007 because now most people recognize that the growth is in the emerging markets. India is one of the stable pockets where growth will continue to happen year after year. We are surely going to see that shift.