Strong fundamentals to keep bulls running: Experts

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Q: Where are you picking from?

Ramachandran: I am picking as opposed to trying to find the general areas of concentration; so, it has evolved into a stock-picking game. We have stocks pretty much in every sector in the portfolio. In terms of sectors, I am most attracted at this point in the cycle to technology. It may seem like a dirty word these days, but I think if you take two or three year earnings growth view on technology, I am quite confident that it is in the 20-plus range. With the kind of return capital they have, I am very comfortable holding on to technology stocks with that kind of fundamental profile.

So, technology continues in our portfolio and so does telecom for the reasons that the penetration continues. Telecom is actually going well beyond the urban areas now, without necessarily having to sacrifice too much margins. Apart from that we are picking among PSU banks, the FMCG sector here and there. Literally, it is a stock-picking portfolio beyond the technology and telecom in the largecaps.

Q: Just one point on the global correction that you are expecting, because global markets have been extremely resilient so far. US bond yields have gone up, crude prices have gone up, bad news is coming from the mortgage side but markets have not corrected. What do you think could be the tipping point, which breaks the back of such a strong global rally?

Ramachandran: Global bonds have gone up as real yields have gone up. If you look at the spread relative to the tips in the US, they have actually increased over the last three-four months, which indicates more that the real yields have gone up rather than the underlying inflation in the bond structure.

Why would that be? I think the answer to that is on the medium-term people expect better global growth than most people had expected a few months earlier. If that is the case, to me the tipping point really does come from inflation scare. Eventually, when the cycle ends the tipping point will come from a true inflationary pictures.

So, I think what can break the back of this market is inflation. At the moment, the good news for us is that because China is behaving the way it is, there is a broad disinflationary force that is countering the cyclical inflationary force. So, the market march right along.