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| On how this bull rally is different from the earlier ones
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| The current rally is different from the ones witnessed in the last decade. The 1992 rally was driven by liquidity as money moved from the banking sector to the equity markets. The next rally was on the back of Indian companies going abroad and raising money.
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| The 1999 rally was basically driven only by the technology sector. Nothing else really moved. In the current rally, however, all sectors have participated.
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| So what we are seeing today is the result of all the corporate restructuring that has happened over the past decade. A number of companies have improved their return on capital despite customs duty reductions.
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| In fact, the EVA of India Inc has been improving steadily. All this is similar to what happened in the US about 10-15 years ago. It is only in the late eighties and nineties that the US markets witnessed a secular bull. And that came on the back of similar set of variables.
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| Threatened by Japanese invasion, corporates in America restructured themselves aggressively in the eighties. This powered by lowering of interest rates led to a surge in the stock markets.
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| Even in India, China caused fear among domestic corporates till, say, three years ago. But now, they are looking at it from an opportunity point of view - that it is a big market and that Indian corporates can also set up manufacturing outfits to attain cost efficiencies.
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| Also many industries are seeing consolidation with the number of players coming down. Look at aluminium, cement and telecom - all have few big players controlling the market. The good news is that the effect of economic turnaround on restructured balance sheets will be dramatic.
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| Currently, markets are trading at around 12 times forward earnings. Some well-managed companies are actually trading at a P/E of 8.5 times with the dividends alone yielding about 5 per cent.
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| In contrast, interest rates are at an all time low and the price-earnings multiple for debt instruments is about 18 times.
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| Then again, some companies have attained record profits, but they are yet to achieve their historic highs in market capitalisation. All this means that we should see a secular bull run.
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| On sectors that are likely to perform
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| During this rally, markets have performed across sectors, companies, market-capitalisation, investment strategies - value, growth or momentum.
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| Similarly, both short-term as well as medium-term investors have made money. Even the technology sector, which did not participate in the rally initially, joined the rally over the last month.
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| There will always be new themes emerging in the markets. Currently, the winning themes are the 'outsourcing' and the 'economy' story. Within the outsourcing theme, auto ancillary, engineering and pharma will be the biggest beneficiaries.
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| In the economy-related sectors, cement, steel, commercial vehicles and construction companies will be some of the gainers. As we see the economy recovering we will have more clarity on the specific beneficiaries.
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| As of now, we are bullish on banking, auto, two-wheelers, metals, media and cement, all of which are seeing structural shifts.
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| Banks: Indian banks are going through a structural shift. The thematic bull run in the banking sector is over. In future there will be a separation of the men and the boys.
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| Our mantra is dynamic organisation and growth and good quality assets at reasonable valuations. Let me give you a good analogy: Look at Oriental Bank of Commerce and HDFC Bank.
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| Both are similar in size with same amount of profits. Quality of assets is comparable or, in fact, better in Oriental Bank. Still, valuation is drastically different. We play these kind of themes.
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| Auto: There are five reasons why we believe there will be big growth in the two-wheeler segment.
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| Firstly, India has a steeply falling income demographic curve at this point against developed countries which have a bell-shaped curve.
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| As the curve transforms into a bell-shaped one, more and more people will fall into the middle-income category. So, there will be more demand for automobiles, particularly motorcycles.
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| Secondly, the replacement market will also bolster growth. As per our estimates, motorcycles used to get replaced every seven years.
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| Now that timeframe is shrinking to five years, thanks to new brands of bikes that come into the market and lower interest rates that lead to affordable monthly installments.
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| Thirdly, age demographics is favourable. The age group of 25-35 is really growing fast in India. This is the group which consumes motorcycles.
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| Next, we are seeing a huge export opportunity. Ninety per cent of world bikes is in 150-200 cc where India has a competitive advantage. So we believe two-wheelers is on a structural bull run.
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| Media: We are betting on the implementation of CAS. An industry cannot function on the basis of irregularities that are going on. Not all the money due to the broadcasters go to them because of non-disclosure by local cable operators.
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| This is going to open a Rs 2,500 crore worth of opportunity to broadcasters. That again is a structural change. Zee TV and Television Eighteen will be beneficiaries in the listed entities.
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| Cement: Here again, the theme is consolidation. Five years ago 32 per cent of the market was controlled by the top five players.
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| Today they control over 60 per cent. There are no huge capacity additions coming up in the near future. We believe that cement has to grow by around 8-10 per cent per annum.
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| From current levels we will need about 10 million tonnes addition every year which will mean that without the capacity additions, the demand supply situation will soon turn favourable for the producers.
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| PSUs: The recent Supreme Court ruling restraining the Centre from divesting oil companies before getting the parliamentary approval is only a temporary dampener for the markets. Not many market participants were expecting disinvestments to go through very easily, anyway.
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| If you look at the stocks, many of them like ONGC, IOC and Bharat Electronics have appreciated sharply.
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| Now, the markets know that none of these companies are going to be disinvested ever. So the price rise is on account of undervaluation. |
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