 "Mid-cap rally is getting stretched now: Anil Sarin")
The markets, particularly the mid-cap companies, are vulnerable to correction following the sharp gains, says Anil Sarin, chief investment officer — equity, global asset management, Edelweiss. In an interview to Purva Chitnis, Sarin says near-term corrections can’t be ruled out but markets should do well over the next two-year period. Edited excerpts:
Is the ongoing rally driven by fundamentals or easy liquidity?
Most of the rally is driven by liquidity. The rally could have been fundamentally driven or India-specific, had the Nifty been performing well and global indices performing badly. In that case, there would have been a decoupling. But right now, we are performing along with other markets. As far as India is concerned, the rally is both fundamental and liquidity driven. In terms of reaching new highs, we are coinciding with the global markets. We aren’t very unique that way.
The Indian markets have rebounded over 20 per cent from 2016 lows, touched on the Budget day. How much of the rally was due to the positives in the budget?
The Union Budget coincided with the reversal in the global commodity prices. It is hence difficult to assess the impact of the Budget on the market. However, there were a few good things that came out of the Budget. Commitment on the fiscal deficit was one thing. The global investor community liked that commitment and it raised our profile.
What’s your view on the markets at this juncture?
Overall, we are confident and bullish for the longer term. We have faith in what the government is doing and expect the economy to do well going ahead. And we are also confident that India will remain attractive in the global context. Putting all of this together, market should be appreciative over the next couple of years. India as an investment destination is well positioned. Our advice to investors is to invest through systematic investments plans (SIPs) over a period of time. Financial assets are currently better bets compared to real estate.
Do you expect commodity prices to increase further?
Commodity down cycle began in 2011 and prices kept falling continually till recently. From those low levels, there’s been a bounce in them so it is tempting to say that prices will keep rising. However, it is impossible to take a call. I would not stick my neck out and say that crude will go up to a certain level or iron ore would reach a certain price. But what I would say is that the downfall has been arrested. I don’t expect the prices to shoot up from here. Nor am I saying that the prices would fall drastically.
Mid-cap index has gained 30 per cent from its lows. What is your take on this rally?
It is time to get cautious as things are getting a bit stretched now.
What are the reasons behind healthy investor inflows into equity mutual fund schemes?
One of the reasons behind healthy flows is the pain in the real estate sector. People are getting disenchanted with the real estate market and a little bit of that money is coming into the equity market. Secondly, some of the policies by the government are beginning to reflect on the ground. Lastly, people seeing market going up are getting encouraged to make equity investments.
Do you expect markets to correct in the near term?
Investor confidence is likely to be tested in the next six months. There is surely a correction on the cards, but we can’t say when. One needs to see how the international events play out. When facts are going in one direction and markets in the other, markets will have to change their course sooner or later.
Is the ongoing rally driven by fundamentals or easy liquidity?
Most of the rally is driven by liquidity. The rally could have been fundamentally driven or India-specific, had the Nifty been performing well and global indices performing badly. In that case, there would have been a decoupling. But right now, we are performing along with other markets. As far as India is concerned, the rally is both fundamental and liquidity driven. In terms of reaching new highs, we are coinciding with the global markets. We aren’t very unique that way.
The Indian markets have rebounded over 20 per cent from 2016 lows, touched on the Budget day. How much of the rally was due to the positives in the budget?
The Union Budget coincided with the reversal in the global commodity prices. It is hence difficult to assess the impact of the Budget on the market. However, there were a few good things that came out of the Budget. Commitment on the fiscal deficit was one thing. The global investor community liked that commitment and it raised our profile.
What’s your view on the markets at this juncture?
Overall, we are confident and bullish for the longer term. We have faith in what the government is doing and expect the economy to do well going ahead. And we are also confident that India will remain attractive in the global context. Putting all of this together, market should be appreciative over the next couple of years. India as an investment destination is well positioned. Our advice to investors is to invest through systematic investments plans (SIPs) over a period of time. Financial assets are currently better bets compared to real estate.
Do you expect commodity prices to increase further?
Commodity down cycle began in 2011 and prices kept falling continually till recently. From those low levels, there’s been a bounce in them so it is tempting to say that prices will keep rising. However, it is impossible to take a call. I would not stick my neck out and say that crude will go up to a certain level or iron ore would reach a certain price. But what I would say is that the downfall has been arrested. I don’t expect the prices to shoot up from here. Nor am I saying that the prices would fall drastically.
Mid-cap index has gained 30 per cent from its lows. What is your take on this rally?
It is time to get cautious as things are getting a bit stretched now.
What are the reasons behind healthy investor inflows into equity mutual fund schemes?
One of the reasons behind healthy flows is the pain in the real estate sector. People are getting disenchanted with the real estate market and a little bit of that money is coming into the equity market. Secondly, some of the policies by the government are beginning to reflect on the ground. Lastly, people seeing market going up are getting encouraged to make equity investments.
Do you expect markets to correct in the near term?
Investor confidence is likely to be tested in the next six months. There is surely a correction on the cards, but we can’t say when. One needs to see how the international events play out. When facts are going in one direction and markets in the other, markets will have to change their course sooner or later.