Stick to Index stocks: Bharti Axa

Excerpts from Markets Midday on CNBC-TV18 Watch the full show » Nifty BSE | NSE 10/02/12 Are Mutual Funds betting on Nifty?

Prateek Agrawal, Head-Equities, Bharati AXA Investment Managers said "An interest rate of 9.5-10% and an economic GDP of around 6.5-7% would be enough to sustain these kinds of markets". He feels that the construct of the index right now, has a hedge built into it and so it is best to stick to the index at this point in time.     

 

Agrawal sees better days going ahead. He expects the economic growth to be better because of large capacities and the KG Basin gas coming onstream.This would result in the current account deficit peaking out as we move into the September-October period., he added. He said that. "The indices are positioned well, if things worsen on the macro side, sectors like IT will benefit and if things improve on the macro side, sectors like banking benefit."  

 

Excerpts from CNBC-TV18's exclusive interview with Prateek Agrawal: 

 

Q: Good going for the markets today. Is this just a temporary pullback and a short covering rally? Will the market see a lot of pain given the interest rate moves?

 

A: We are not at very demanding levels in terms of valuations. An interest rate of 9.5-10% and an economic GDP of around 6.5-7% would be enough to sustain these kinds of markets. If the expectations are or the reality is better than this, then we are in cheap territory. The markets will be volatile as there will be a lot of negative newsflows. Given the state of the market and the fear in the markets, volatility would be the order of the day.

 

However, in terms of timing and of outlook, we should begin to see better days going ahead. Economic growth would be helped because of the large capacities coming onstream and the KG Basin gas coming onstream. This would result in the current account deficit, which is worsening, peaking out as we move into the September-October period.

 

If banks don't end up increasing rates once again at the retail level, the rate of inflation would start to move down. In the first quarter of next year, we expect the Centre to increase wages. The part of the economy, which is not functioning as of now, is probably consumption. This is mainly due to higher interest rates. So, by increasing wages the government is giving a kick in terms of inflows into people's account. That will be followed by state government and public sector wage increases.

 

Q: So what are you buying?

 

A: We are staying close to the index. There is no clear-cut direction in the market. The indices are positioned well because, if things worsen on the macro side, sectors like IT will benefit. If things improve on the macro side, sectors like banking benefit.

 

The construct of the index has a hedge built into it. It is best to be close to the index at this point in time.  

 

Q: You spoke about how valuations are looking very cheap. For a lot of liquid midcaps also and larger midcaps, the valuations have taken a much bigger hit than what the Sensex or the benchmark stocks would have taken. Would you look at these at all in terms of the liquid space and if so what are the spaces that you are looking at?

 

A: Midcaps are available at very cheap valuations. However, midcaps would tend to perform significantly better only when money flows into the country improve. We expect to relook the midcap space some time post this quarter once the FII flows start coming into the into the country again. Before that liquidity would be at the premium.

  

Q: Do you expect the FII inflows to start anytime soon at all? Do you feel the worst is over for the US markets and for us? Do you expect FII flows anytime say early 2009 or even 2008?

 

A: We have looked at the losses the financial sectors have registered globally and the kind of fundraising these companies have done. Since the middle of CY07 when the financial sectors started to registrar losses on account of the subprime, the losses were significantly ahead of the fundraising. But over the last two quarters, fundraising is significantly ahead of losses. Our sense is that a total of USD 550 to 600 billion of fundraising needs to be done over a period of five extra quarters. The intensity of fundraising from financials will then go down as we move forward. Stability should get restored in the financial markets from the next quarter onward.   

 

For more Mutual Fund Interviews click here