Experts from the interview:
Business Standard: In the wake of economic sanctions imposed by the US and other western governments, how do you think the stock markets are going to react ?
Vibhav Kapoor: The market has reacted in a panic to the recent events and it has more to do with sentiment rather than fundamentals. We believe the sanctions will not be drastic and thus the impact too would not be drastic. We are not bearish about the market in the medium term and further we hope that after the budget the market should go beyond the trading zone.
However, some slow down in infrastructure sector is expected following these sanctions. This is where the government would have to step in and increase its spending in the infrastructure structure. The impact of the sanctions, if any, can be negated by the governments intention to kick-start the economy.
The government can use the forthcoming budget to announce some measures that will help in reviving the economy. Buy-back of shares is one announcement which the market anxiously awaits. I do not believe there can be any tax incentive in this budget specially since the government has failed to stick to its fiscal deficit.
For one, it is clear that it would be more of policy decisions rather than fiscal measures that needs to be taken up to kick start the economy.
BS: What strategies should the retail investors adopt during this period?
VK: The retail investor should not act in haste and should wait for the budget. They should be selective in their stock pickings and identify healthy companies, based on good management and transparency. One should look for sectors like cement and power equipment, which is expected to benefit from the budget. Once the government increases its spending on the infrastructure, then cement stocks will benefit in a long way. To be on the safer side the investors should stick to defensive sector such as FMCG, refinery and pharma.
BS: The software stocks have suddenly hogged the limelight and these have so far given excellent results. Do you think the software stocks merit the attention they have been getting?
VK: We are still very bullish on this sector, simply because this sector is going to grow at the rate of 50-60 per cent for the next three to five years. So the stocks in this sector still have a lot of upside.
In fact the Oppenheimer Fund has the highest exposure in the software stocks. We had identified this sector as back as in 1994. IT industry is going to be the thing of the future and India has a competitive edge. However, one should be careful while picking up stocks in this sector also. There are certain companies in this sector where the concentration of orders is in project Y2K alone. Such companies may face problems once they run out of these orders. While picking stocks in this sector, one should look for companies that have a diversified interest, such as the Internet multi-media among others.
BS: Has the domination of FIIs become a thing of the past in the Indian stock market?
VK: It would not be correct to say that domination of FIIs is over in the Indian stock markets. True, with the over all liquidity in the system improving, more money has come into the stock market. It is interesting to observe that even though FIIs have remained net sellers, the markets have firmed up mainly because the retail money has been pouring into the market.
