The Hindu Business Line : We are not overtly worried about volatility: Ambit Capital

Volatility happens to be an important element of the market, says Mr Manish Kanchan, CEO, Ambit Capital, adding that investors should not expect one-way upward moves all the time.

"Do not necessarily take cash off the table... for one thing, where else would you invest the gains that you have realized in a more productive manner?" he asks.

The equity market is see-sawing violently. Do you see this as part of a longer-term trend?

Volatility is here to stay, particularly at this level when valuations appear rich on fiscal 2007 earnings and in some cases even on fiscal 2008 earnings. Negative news gets amplified and results in higher volatility.

As long-term investment advisors, we are more concerned about macro trends, which are still intact, IIP numbers for October 2006 notwithstanding. Accordingly, we are not overtly worried about volatility. International trends are worrisome to an extent.

In particular, the slowdown in US housing market could impact world economy negatively. Although the Indian economy is reasonably insulated from such vagaries, our Indian markets are linked to the performance of emerging markets as a whole.

With volatility becoming evident, isn't there a temporary case for gradually moving out of equity by booking profits?

Though valuations appear stretched - that is, considering fiscal 2007 - we do not recommend profit booking and taking cash off the table for two reasons.

One, where would you invest realised gains more productively? Two, we believe that fiscal 2009 numbers will get factored in valuations in the next six to nine months.

Besides, there could even be a pre-budget rally in early 2007. Based on fiscal 2009 earnings and given a two-year time frame, we see limited downside in the market.

Volatility is a key ingredient of the market and you should not expect one-way upward moves all the time. We advise clients not to time the market. It is essential that they remain convinced on the business model, management and the environment, and then hold on to stocks.

Have asset allocations gone awry, with low exposure to fixed-income and other asset classes? Is that a real threat to investors' longer term well-being?

Not at all. Indians in general buy gold and real estate and invest in bank deposits. I do not think the overall equity exposure is high.

However, awareness about equity has definitely increased over past 2-3 years. Better growth prospects, favourable tax environment for equity investors (with reference to capital gains and dividends) and lack of alternate avenues have contributed to this.

We see this as a healthy trend since equity has historically outperformed all other asset classes over time. But we advise investors to invest according to their risk appetite and avoid story-based investments. They also need to invest systematically over a period of time for the long term.

Are there sectors you want investors to go over-weight on at the moment? Similarly, are there sectors that you would want them to largely avoid?

We expect telecom, cement, media and logistics to provide better than average returns. Some sectors that may disappoint in the short term are metals, pharmaceuticals and oil and gas.

Having said that, let me also add that it is important to find winners within these sectors. Further, let us bear in mind that value will get created when today's mid-caps become large-caps tomorrow.

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