Sanju Verma, managing director and CEO, Centrum Broking, tells Priya Kansara Pandya that high valuations will never be a cause for worry till the time India provides highest visibility for growth. Edited excerpts:
The markets are facing resistance at higher levels. Can we expect some correction in the short to medium term?
With the robust pace of inflows from foreign institutional investors (FIIs) continuing for the past several months, the underlying momentum is strong and I feel the rally will continue. Since this rally has been driven by huge pumping of money by FIIs, a major selloff should also be triggered by them. We do not expect a major correction unless something dramatically goes wrong with any of the FIIs.
Are the markets looking stretched with such high valuations?
Indian markets were never about valuations. Even at 16,000-18,000 levels, they looked expensive. Among Bric nations, India is the most expensive, but it provides the highest visibility for growth.
While Brazil and Russia trade at 10 times and 6-7 times one year forward earnings, no other country has the ability to report 8.5-9 per cent gross domestic product growth in 2010-11, or even 7-7.5 per cent if you are being pessimistic.
With a slew of initial public offers (IPOs) coming in the second half of the current financial year, do you see pressure on the secondary markets?
I think money flowing into IPOs should not stop the secondary market rally, as flow of liquidity is expected to continue to be quite strong. Moreover, despite all the exuberance and optimism in the market, the success of IPOs will be more dependent on pricing and valuation compared to fundamentals.
How long do you think the party will continue for auto players, which have been reporting robust growth?
Lack of demand should not be a concern for the auto sector. Constraints like lack of adequate ramp up in production facilities and availability of components could hamper growth. In any case, the valuation of the sector is not looking comfortable at present.
