Mkts to remain strong; bet on midcaps: Ramesh Damani

Excerpts from Bazaar on CNBC-TV18 Watch the full show » RELATED NEWS Rakesh Jhunjhunwala on how to pick the right stock Indian mkt on cusp of multi-year bull run: Ramesh Damani ALSO READ See what other experts are saying about markets See what FIIs are saying about the markets See what Udayan Mukherjee is saying about the markets Nifty BSE | NSE 01/06/12 Are Mutual Funds betting on Nifty?

Market veteran Ramesh Damani says he is looking forward 'positively' to the year 2010 where, he says, equity markets may continue to be strong. Speaking to CNBC-TV18, Damani attributed the global equity market rally to healthy fund flows and improving corporate earnings and disagreed that it was purely because of the dollar carry trade. "There is a school of thought that you borrow money at zero interest rates in the US and deploy it in fast-growing emerging markets that is behind the rally," he said, adding, "But that doesn't explain how the US markets have been strong."

The markets would continue to be strong ahead and would test their lifetime highs but would get reined in due to capital absorption by initial public offers (IPOs) flooding the markets. "The markets have been buoyant and you will do well to be a stock picker. However, I'm not sure that the markets are in a great hurry to take out their all-time highs that they made few years back," Damani said.

Buy midcaps

The best trade for the next year would be to buy midcap stocks, the market guru said. "The trick in the stock market is always buy those things that are cheap. Right now, there is a lot of value in the midcap stocks while the A-group stocks or the F&O stocks are fairly richly valued - some of them are trading at a high PE ratio as the fund flows from abroad usually chase such frontline stocks," Damani said. "If you keep a sharp eye out and look out for midcaps and the small caps, there are lots of good companies growing at 20-25% and which are available at PEs of 5-6. My sense is that midcaps will give good returns for the next year or so."

View on US

Even as the US markets were strong, the country's economy faces a stiff challenge, Damani said. "It depends on your perspective. Say, 10 years ago, it was a misfortune to invest in America - you have had zero returns on the S&P, the S&P is where it was 11 years ago, though even in that, some sectors have done well while others have not."

"The reason the US markets are going up is because US assets are becoming cheaper for us to buy."

Gold in bull market

Damani is of the view that a bull market has started in gold and that it would soon de-link its correlation with the dollar's fortune. "Gold has broken from its 30-year base formation and made new price highs. That suggests significantly higher prices. Gold will go up on its own strength now."

Damani attributed the gold bull market to a combination of factors. "People are not trusting paper currency anymore. They want to diversify their assets. Gold also has only limited amount of supply unlike equities where paper can be almost unlimited."