Jagannadham Thunuguntla, strategist and head of research at SMC Global Securities, talks to Puneet Wadhwa about global investors, the sectors to invest in and the emerging equity markets. Edited excerpts:
The markets have been trading sideways since the past few sessions after the recent run-up. How long will this continue? What are the likely triggers for them to move up/down?
So far, the monsoon has been fairly good and are expected to remain so, according to the India Metrological Department.
However, globally things are still a little skittish, like the euro crisis, the decision of the US Federal Reserve to introduce a third round of quantitative easing or not and various others. Till the time these global factors are present, we can expect the markets to remain sideways.
According to reports, global investors have withdrawn $1.38 billion from India-focused equity funds in the first six months of 2011. What, according to you, could be the reason?
The emerging markets (EMs) are expected to grow at a slower pace this year as compared to 2009 and 2010. This has resulted in sell-out by global investors leading to flight of capital to the safe havens of US Treasury bills. Further, there is a growing belief that US capital markets are expected to do well this year.
Do you think the conditional nod for the Cairn-Vedanta deal has sent a positive signal to the foreign investors?
It may not be the best solution, but it is a solution nevertheless. It is a much better position to be in than the “stalemate” situation that was continuing since the deal was announced late last year. It is a big relief for companies, as the deal is appearing to reach its final stages. This is very critical to build India’s image. India always aggressively invites FDI, but there is a tendency to keep restrictions at the time of exits. Hence, the approval was very critical to get India’s act together to position for future Foreign Direct Investment proposals.
What is your outlook on the first quarter earnings in terms of topline and bottom line growth? Have the markets factored in the likely performance?
Most of the positives that can be expected in Q1FY12 results seem to be factored in the prices. One can expect the information technology (IT) and the fast moving consumer goods (FMCG) sector to do well. Real estate, infrastructure and auto companies may not post great numbers, especially Maruti, because of the loss of production it faced due to the strike at the Manesar plant.
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In an earlier interview to Business Standard, you had suggested there was a leadership crisis in the Indian equity market. Has the situation changed?
Well, far from it. The situation persists and is likely to continue for some more time.
What sectors/themes are likely to do well from a medium-term perspective?
Sectors like IT, FMCG and pharma are expected to do well in the medium term.
What is the rate of return you expect from the Indian equities in FY12, compared to the other asset classes such as real estate, precious metals and mutual funds?
One can expect a decent double-digit return from the equity segment in FY12. They are expected to outshine real estate for sure, and may even outshine assets like precious metals in FY12.
What is your advice to retail investors in the current market scenario?
There is a strong possibility of the markets moving down from the current levels anytime. Thus, investors can book partial profit in the current short-term rally we are witnessing.