India Infoline Chairman Nirmal Jain appears bullish on 2010 but does not expect a runaway rally. In an interview with Palak Shah, he talks about a host of issues ranging from extension of trading hours to competition in the exchange space. Excerpts:
How do you see stock markets in the coming year? What are the key concerns?
I expect 2010 to be a good year for the markets. Overall, there will be a positive bias and most stocks should do well as the economy is doing well. However, I do not expect a runaway rally or even a repeat of 2009. At best, Indian equities will give 15-20 per cent returns in 2010. This is mainly because the markets have already run up a lot and given more than 100 per cent returns since March.
Consumption-led growth will continue as there is huge money in rural India due to employment guarantee and other social sector schemes. Private sector capital expenditure is expected to revive. The key concern is execution. For instance, we have heard a lot about the road sector, but when I was talking to the chief executive of one of the largest infrastructure companies, he was lamenting that hardly any new orders had come through. Also, any bad policy decision could have a domino effect on stocks.
Brokers are bullish. What is your target for the end of 2010?
The Nifty may cross 5,700 in 2010. The mood among domestic brokers has improved significantly but the crisis is still fresh in people’s minds and they are cautiously optimistic. Retail clients are coming back to markets.
Considering the liquidity in the system and flow of funds into the country, do you think that stimulus packages by governments around the world will be reversed?
Most governments will be hesitant to withdraw in a hurry. It will be done in a phased manner. However, in India, the cash reserve ratio will be increased in January and a gradual withdrawal of stimulus as well as an upward pressure on interest rates will be seen in the next financial year. But these are unlikely to cause any significant damage to market sentiment.
Trading in stock markets will start from 9 am from January. Is this the right way?
Concerns about market timings being advanced by 55 minutes are exaggerated. Even when market timings were changed from two hours to five-and-a-half hours a few years ago, there were widespread protests. However, the extension was the best thing that could have happened to the markets. This extension is just about an hour.
You, along with other brokers, met the National Stock Exchange officials recently on extension in trading hours. What was the discussion on?
Considering the rapid growth in markets and the rate of savings, which in 10 years will be around $800 billion a year, the markets will become much broader and deeper. Therefore, in our meeting with NSE executives, most brokers who represented retail investors felt we had far too many holidays and demanded that at least Nifty futures be traded on these off days. Fewer holidays and extended timings will absorb all global news flows and prevent erratic market movements. However, in the cash market, we should just go for a one-hour extension and wait and watch how volumes are impacted, because if same volumes are traded over a longer period, the price discovery will become less efficient. However, I feel that all market participants will adjust to the new timings with ease.
Investors in recent initial public offers (IPOs) have burnt their fingers. Is there an appetite for a slew of IPOs, qualified institutional placements (QIPs) and follow-on public offers (FPOs) lined up in 2010?
The markets will have appetite for IPOs that are of good quality and are appropriately valued. IPOs can attract new money from foreign as well as domestic investors provided they are priced well so that something is left on the table for investors. There is liquidity for QIPs and FPOs too, but unlike earlier such issues, only the best with the right strategy will survive.
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India Infoline has two offshore funds. What is the mood in the industry after the worldwide crackdown on hedge fund traders?
Hegde funds are cautious. The euphoric mood of 2007 no longer exists. However, in the US, the interest rates are near zero. So, there are many hedge funds that are able to work and carry trades in US dollars (borrow in US dollars and invest a part of that in emerging markets) and also attract some money. Some of the foreign institutional investor money has come on that basis.
The competition in the stock and commodity exchange space is heating up. While the BSE has revived its war with the NSE, the MCX-SX is mobilising support for launch. Also, some big players are making a foray into the commodity exchange space. How do you see the battle shaping up?
In a free market, competition is always welcome. Competition leads to more players than what is warranted or can be justified by the base of customers and the structure of the market and then consolidation takes place. As far as stock markets and commodity exchanges are concerned, India can have two-three or at best four players.