Rajat Rajgarhia, director (Research), Motilal Oswal Securities, tells Krishna Merchant that though recent events will cap upsides, earnings momentum and valuation support are likely to keep the markets range-bound in the medium term. Excerpts:
How long do you see this overdue correction lasting?
We believe the markets are likely to trade in a range for some more time. While upsides will be capped, led by recent events, earnings momentum and valuation support will prevent any major downside.
What is your outlook on banking and housing finance sectors, given the recent housing loan scam? Do you see the asset quality of banks being affected, putting further downside pressure on stocks?
We do not see any pressure on the asset quality of banks. We believe bank’s earnings will be driven by the strong loan growth and stable margins. Valuations for the sector after this correction look attractive.
Do you think markets have already started discounting 2011-12 earnings?
Markets have been discounting the 2011-12 earnings, as the Sensex trades at a PE of 15 times the 2011-12 earnings per share. We are at the average of last 10-year PE bands.
Given the recent 2G scam, should investors continue to avoid telecom stocks?
We are positive on Bharti Airtel, as the domestic business will show good traction, led by stable volume growth and higher revenues driven by 3G. With further clarity on the improvement in African operations, confidence in earnings growth will return, which is a key to the stock’s performance now.
The metal stocks have not been doing too well of late. What is your outlook for this space? Do you see the Chinese demand for metals faltering?
In recent times, China has seen some concerns driven by inflation and efforts to slowdown growth, which affected metals. Given the volatility in all asset classes now, we believe metals are no different. With strong volume growth potential, we are positive on metal stocks like JSW Steel and Hindalco.