Kishor Ostwal, CMD, CNI Research Ltd, tells Krishna Merchant that the economy may be under severe crisis if crude oil moves beyond $130-140 in the near future. Edited excerpts:
How do you see the markets panning out in the near term?
I expect the markets to scale new highs before the Union Budget in 2011. A five-per cent upside in the next two months is possible, mainly driven by overseas markets.
The second round of Quantitative Easing (QE2) has increased liquidity and the US markets are expected to rise. After the collapse of Lehman Brothers, this is the first Christmas when people will spend money. It will reflect in good corporate earnings for overseas companies. Hence, Indian markets are also expected to do well.
If the recovery gains further traction in the US, do you think fund inflows to India will reverse in the second half of 2010-11?
I do not expect fund inflows to reverse in the second half. Irrespective of QE2 and global recovery, the US markets are far from out of crisis. The US Federal Reserve (Fed) has gone on record saying they will not be shy to introduce QE3. QE3 will bring more liquidity into the system.
Oil is again hovering around the $90/barrel mark. What impact do you foresee on Indian markets and companies?
Companies will be able to pass on rising oil costs. The entire domestic consumption theme has caught up well. There is a large demand over-supply scenario. Hence, at $90, we are not in trouble. If oil goes beyond $130-140/barrel, then there will be a spate of crisis. I do not expect oil to cross $110/barrel before 2012.
Do see a consolidation in the information technology (IT) sector at current levels after the recent run-up?
The IT sector has discounted earnings growth. I am cautious on this space as valuations are stretched. If something goes wrong (the rupee rises considerably) and if there is any downgrade, the sector will get battered. If you are invested, it is advisable to hold on. There is nothing negative at the moment.
