Sunil Singhania, Head - Equity, Reliance Capital Asset Management, tells Krishna Merchant< that inflation is a structural issue as more people are rising above the poverty line, leading to higher demand for food and other goods. Singhania is positive on pharmaceuticals, banks and metals and will be closely watching infrastructure and cement. Excerpts:
The markets have not started on a good note in January. Do you feel 2011 will be a year of two halves, where the first half will be bad and the second half better?
The last two months have suddenly changed the dynamics of the market completely. From a lot of optimism, now you are looking at consensus pessimism as far as the near-term outlook is concerned.
There are headwinds in terms of a few scams getting unearthed, which started the downside. There is inflation, which seems to have gone out of control, and liquidity has become tight. We feel these kinds of headwinds keep on coming in an emerging economy.
Secondly, it (inflation) is more of a structural issue. More people in India are rising above the poverty line and therefore demand for food and other comfort goods is rising. From a foreign investor’s perspective, though in the near term everyone has become cautious and money is not coming in, there is no denying the fact there are more than enough global investors who believe in the long-term growth story of India. Once these headwinds start to recede, these very investors will become positive on the Indian markets.
What is your advice for retail investors?
We believe that long-term investors ultimately make very good returns in the markets, and historical data going back 15 years prove that. So, retail investors should not be bothered about what is happening in the near term. From an investor's perspective, SIP is the best investment and that is what they should focus on.
Do you feel the worst is over for the banking counters?
Notwithstanding the fact that stocks have fallen, one way to look at this is even after this fall, on a one-year basis banks are still the best performing sector. Our belief is that if the economy has to grow 8 per cent plus, banking as a sector will definitely grow at 16-18 per cent per annum.
What other sectors are at reasonable valuations?
We are positive on information technology (IT) but valuations are not as cheap as seen few months ago. We like pharma and banking too. On the consumer side, we will wait for valuations to become decent. The metal pack looks quite attractive right now. We are also watching infrastructure and cement closely.