See single-digit inflation by early '09: UTI AMC

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Sanjay Ramdas Dongre, Senior Fund Manager at UTI AMC feels that the market is going to remain directionless for the next three-six months. He said that short-term environment in the global market continuously remain uncertain. For a short-term view, he believes that the earnings growth is expected to be something like 12-14% this year. He doesn't see market rallying in a short-term. For a medium-term to long-term perspective, he feels that things might change after four-five months because inflation is likely to come into the single-digit at the start of next calendar year. He said that there could be bit of a rally in markets only in the next year.

Excerpts from CNBC-TV18's exclusive interview with Sanjay Ramdas Dongre:

  

Q: What's your sense of markets right now? We are at about 4,290 for the Nifty, do you think going forward we are slipping into a range of about 4,200-4,400 or we can break this range?

 

A: The market is going to remain directionless for the next three-six months. You might see the market rallying in one week and in another week the market will decline. Market is likely to trade in a range in the next three-six months. So, you might see the market positive on some day and negative on some day.

 

Q: It's a pretty eventless market if you look at the month of September, October. We had the monetary policy and got into the results season. What are the key cues you would feel the markets would look for in the short-term and medium-term to get some sort of direction?

 

A: Short-term environment in the global market continuously remain uncertain. Lot of analysts feel that another bouts of write downs related to mortgage assets is likely to happen. Macro environment in the domestic market continues to remain weak. Higher inflation, higher interest rates are the things, which are not going to go away in the next three-six months plus earnings are slowing down. This year the earnings growth is expected to be something like 12-14%. So in this kind of environment, it's very difficult to see how the market is going to rally in a short-term.

 

If you look at the market from the medium-term to long-term perspective, things might change after four-five months because inflation is likely to come into the single-digit at the start of the next calendar year. As we know that equity valuations are very closely related to inflation. So if inflation comes down next year, you might see interest rates declining in our economy.

 

Therefore, earnings multiple for markets could go up. At that point of time, you will have a situation of earnings multiple going up but earnings slowing down because it will take some bit of time for earnings to catch up. If you take both the effects into consideration, you could see some bit of a rally only in the next year. Otherwise this calendar year, more or less market is likely to oscillate in a range and will be pretty much a directionless market.

 

Q: What's your strategy on the rate sensitives? Would you buy now or would you wait for another two-three months before inflation gives clear signs of cooling-off?

 

A: If you look at the inflation trajectory, it is not going to come into single-digit this calendar year. Somewhere around February-March, inflation is likely to come into the single-digit and therefore it will be too premature to take a call on interest rate sensitives at this point of time. Three-fours months down the line will be a good time to look at interest rate sensitives from investment point of view but at this point of time it must be avoided.  

 

Q: Give us a sense of cash levels you are currently sitting on at UTI? You talked about an oscillating market. Would you look at deploying some sort of funds and which are the sectors in such a market because we have corrected a fair bit?

 

A: As far as the cash levels are concerned, we are carrying something like 12-15% cash in most of our funds. I might not look at deploying that cash to a large extent at this point of time but three months down the line would be a good time to look at the market from investment point of view. At that point of time, we will have a very close look at the interest rate sensitives.

 

Therefore at this point of time, my funds are equal weight on FMCG, telecom, IT and underweight on interest rate sensitives because that much amount is there in the form of cash and I would look at investing that only three-months down the line.

 

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