T S Harihar, senior vice-president, ICICI Securities, spoke to Krishna Merchant about the trends in markets. Excerpts:
The Reserve Bank of India has recently said global economic situation would impact capital inflows. Will subdued global markets and weak recovery in the US affect fund flows to India?
Fund flows from large fund houses abroad will be affected the most. Hedge funds are also finding it difficult to bring fresh money to India. High networth individuals and retail collection houses are struggling to raise money from the global markets. At 17-18x PE, the Sensex will not attract much inflow to India. Since the last four-five quarters have been witnessing earnings growth, it is expected to slow down going ahead. Also, the rupee is expected to weaken, as current account deficit is expected to rise. One has to track the domestic inflation also. All this is not favourable for foreign institutional investors (FIIs) willing to invest in India.
Markets have risen on foreign portfolio investments of Rs 11,150 crore. However, domestic insitutional investors have not contributed much to this rally. Do you see a major correction going forward?
The cash buying figures provided by Sebi are misleading. A large chunk of money coming to India is arbitrage buying in cash and selling in future. FIIs borrow from Japan, where there is low rate of interest, and invest in India where the rate of interest is high.
Will the Nifty continue to move sideways, or will it break out from the 5,550 resistance levels?
I expect a breakout in the Nifty and see a new high. I also expect inflation to be under control in the next four-five months, with the rupee stabilising. If that happens, forex flows will come in by October/November. I expect next bout of short-covering by November, which should get us close to new highs. Nifty might touch 6,100.
In worst case scenario, we could see four-five per cent gyration by the first quarter of next year, which could take Nifty down to 4,700.
For the year to date, the Sensex has gained 4.5 per cent, outperforming the broader MSCI’s emerging markets index? Will it continue to outperform peers?
The Sensex may not outperform peers since other Asian markets like South Korea and Taiwan are trading 9x-10x price to earnings multiple. Therefore, a couple of these South Asian economies are expected to outperform in the next six-nine months. The Sensex will not see a major correction, but peers are expected to outperform.
Have markets factored in all the good news from the first quarter earnings and easing of inflation?
There were more bad news on the earnings front than good news. The quarterly numbers of L&T, SAIL, Reliance Industries and HDFC were dissapointing. For inflation, the worst is over. Markets are still jittery and have not factored in inflation easing. The Sensex is struggling to cross Rs 1,000 earnings per share for 2011. Earnings are expected to be muted in future.
