Trade on! Nomura says valuations not expensive post rally

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Trade on! Nomura says valuations not expensive post rally

In an interview to CNBC-TV18, he said, "You can probably call the market for a year but near-term it is very uncertain in the near-term given the fact that we have seen so much of outperformance in last 20 days compared to other Asian markets. You have support at these levels. You would probably have stocks which are cheap."

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Excerpts from Bazaar on CNBC-TV18 Watch the full show » 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

While there were many who had lost hopes on India, there were others who felt India still had potentials to give good returns. Indian market continues to rally since last week Prabhat Awasthi of Nomura feels that valuations in India are still not too expensive after the rally.

In an interview to CNBC-TV18, he said, "You can probably call the market for a year but near-term it is very uncertain in the near-term given the fact that we have seen so much of outperformance in last 20 days compared to other Asian markets. You have support at these levels. You would probably have stocks which are cheap."

On a positive note Awasthi is expecting Indian macros to be better in the second half of 2012.

He is underweight on autos as he feels upside is limited in Tata Motors while Maruti 's volumes continue to be under pressure.

Here is an edited transcript of his comments. Also watch the accompanying videos.

Q: What's it looking like? We have had a spectacular pullback. Do you think it's good for more or would you start getting cautious here?

A: We are sort of in a risk on trade globally so I think Indian market has reacted even more positively, because we essentially had terrible performance last quarter of the year. This is payback time in some sense. Valuations had gotten crushed to a level where too much disappointment and negativity was being built in.

I think valuations are not excessive, no question about that. Even though there are sort of economy headwinds in terms of slowdown but inflation has peaked, rate cycle has peaked.

You probably could do some more from here over next few months because the fact is that it is quite likely that ECB will continue to sort of increase their balance sheet and keep the risk appetite high in the coming few weeks.

Q: How much more there you would say? Would you give the market 10% or 15% from here in terms of what you hear on liquidity or less?

A: Well frankly if I knew that I will be making a lot of money from that, but the point is that the valuations are still not very expensive. I think you can probably call the market for a year but I think it is very uncertain in the near-term given the fact that we have seen so much of outperformance in last 20 days compared to other Asian markets.

You have support at these levels. You would probably have stocks which are cheap.

Q: The other one thing which has happened is that globally people seem to be breathing far easier now with the news flow from Europe. Do you think the risk-on trade will continue for a while longer given that there is so much liquidity creation which is happening in Europe or is there any event which you think can turn the tap off?

A: I think the chances are good that it would continue because you have another injection in February. So most likely situation is that you probably are good for a couple of months. Fundamentally it takes lot of risk off the table because you have really expanded ECB balance sheet dramatically.

Riskier assets have done much better than the safe cash assets, which until some extent might continue just some more time. I was just looking at a strategic piece when we published it and the banks and real estate which we were recommending are up like 30% odd to 20-40% anywhere between that compared to the broad market which has gone up basically about 10-11%. So, there are huge outperformance from riskier assets.

To that extent I think the market has got some balance bank in its valuation differentials. You probably will still make some money by the year-end, but obviously the extent of what you would have made is now diminished given the rally we have seen.