Rally to continue, market may see new high: Punita Sinha

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Yesterday, Euro zone finance ministers sealed a second bailout for debt-laden Greece . Punita Kumar Sinha, managing partner of Pacific Paradigm Advisors says, the bailout clearance is already discounted by the markets.

She expects equities to continue to inch higher. "While there maybe some sort of short-term consolidation because the markets have run-up a lot, but the trend generally seems to be still positive for equities," she asserts.

Emerging markets received USD 2 billion inflows last week. Sinha says, Indian valuations are not too attractive compared to China. However, she says, if Budget, election outcome support and the global risk on trade continues, the market may see a new high.

According to her, rising commodities is only threat to the global equity rally. "Crude remains a concern for India, may compress earnings," she adds.

Below is the edited transcript of her interview with CNBC-TV18's Mitali Mukherjee and Sonia Shenoy. Also watch the accompanying videos.

Q: Greece development, what kind of impact do you expect to see in terms of equity market performance? Is it in the price or given sentiment could the markets actually move higher?

A: I think the Greece news is generally in the price because markets had been anticipating this for a while. We have also had another positive development over the weekend- China cut its reserve requirements. I was surprised that despite that, the Asian markets were relatively weak. That means that generally a lot of this was baked in the valuations.

Overall, I think the newsflow is likely to continue to be positive from global sources. So, I think money is going to keep flowing into equity markets globally. We saw last week itself USD 2 billion went into emerging markets. I think that will continue to help India as well. I think while there maybe some sort of short-term consolidation because markets have run-up a lot, the trend generally seems to be still positive for equities.

Q: Is it taking people by surprise the sheer force of performance? India has already delivered more than it does in a year in dollar terms for global investors. What is feeding the liquidity so much into markets like ours? What is your sense of the kind of upside potential we have here?

A: As I said that India is a beneficiary of the flows to equity markets generally. People have been underweighted equities over the last year or two. So, they are allocating more to equities. We are also seeing more allocation because people are getting a little bit more comfortable with the risks inherent in the system. So, they are allocating more to emerging markets. India is a beneficiary of that.

Specifically, we are seeing investors now beginning to look at India as well. There are allocators out there who are now after the rally in India beginning to say, 'did we miss it or there is more to go.' So, they are starting to look at India again. While the valuations may not look as attractive as they did and there maybe some consolidation, I still think that the general trend is to allocate more to equities.

Q: It has been a great scale up from 4,500 levels in December all the way to 5,600. If you had to allocate money at this point in time, where would it be? In which sectors do you see the maximum potential now?

A: I still think that if one is to be constructive on equities, one would still have a bias towards cyclical, although some of them have run up quite sharply. India also has specific events ahead of it, ofcourse the Budget, the UP elections.

Just like we have seen some positive developments towards the power sector, I think we might continue to see some positive developments in sectors, which have been plagued with government uncertainty. So, we might see some change there. Those sectors could be beneficiaries. While the cyclical trade broadly continues, within that, there is going to be pockets of sectors where government reform programmes might stimulate those stocks.

Q: Would you not be worried about issues like crude and the way it would plague our market? Do you think that could dampen the sentiment, if at all?

A: Definitely crude is a concern more specifically for India, less for some of the other equity markets. So, some of the other equity markets, even including Europe and US, are not as affected by crude.

India, in particular, while this quarter and the next quarter, the earnings might be good, I think if crude continues at this level then the earnings can get negatively impacted. That coupled with if the market continues with this kind of momentum then the valuations would also at that point not look attractive. So, in the longer term or medium-term, that is the concern for Indian equity markets.