With stock markets plummeting all around sharply, there are apprehensions that bourses in India, too, will come under severe selling pressure. Political uncertainty also had a bad impact. Aspi T Contractor, head of equity research at Ceat Financial Services, spoke to Rakesh Sharma and Denny Thomas about the factors that could impact sentiment.
There seems to be a slowdown world-wide. Is a deceleration in portfolio investment in India on cards?
There is no recession in Europe or the United States (US). After a continuous growth of seven years, it is basically that the economy is pausing for a breather.
We have seen a slight impact on the US economy due the Asian and Japanese crises. But once the Asian markets pick up next year and Japan stabilises, the US and European economies will start to look up again.
Fresh flows into India will take place once there is political stability, when there are clear signs of economic growth, and better corporate performance.
Right now, people are pulling out. Both foreign direct investment and portfolio investment will come in a big way once there is stability and it is seen that the country is moving forward. Now this is not happening.
The first-quarter results of many companies have been disappointing. Do you believe that things will improve in the next quarter?
I expect the corporate growth to pick up in the second half. The first-quarter performance has been disappointing. It is imperative that the government gives the right indicators for growth. It is very important to first invest in the core sector.
Infrastructure investment will lead to capital goods investment which will have a virtuous effect on other related industries. Currently only three to four sectors are doing well. Steel is declining, cement is stagnating and commodity is by and large insipid.
Thus, there is a clear message: If investment in infrastructure sector takes off growth will pick up in the sluggish sectors in the next quarter. This investment initiative has to be taken by the government.
Do you see the stock markets picking-up in the coming months?
The bourses are poised very delicately. The trend is very shallow and there are not many who are doing buying for the long term. Investments are limited to a few stocks.
There is very little interest in blue chips now. When there is a shallow trend, any kind of positive news has a significant impact on stock prices. Till there is political stability and economic growth the markets are going to be volatile.
How do you see the liquidity improving?
Liquidity will only come back once investors regain confidence. At present, the investors do not have any faith in the markets. As of now mutual funds which are attracting funds are putting their money into bonds and not into equities.
What will be your current investment strategy?
We are looking at growth-oriented stocks such as those in pharma, fast moving consumer goods (FMCG) and software sectors. We have ignored asset-based stocks.
This is because manufacturing is fast becoming a commodity. An entrepreneur who has the ability to raise resources can set up a manufacturing facility. The value-addition comes from distribution network and marketing. You need to have both and then create a brand.
Our concentration has been on stocks which have met these criteria. We have looked at other sectors but do not find the valuations attractive.
