The Hindu Business Line : Market View

Inflationary concerns continue to have plateaus, assisted by falling oil prices that have benefited from a warmer than expected Northern Hemisphere winter. Therefore, we are again entering a phase of risk-seeking behaviour from global investors, particularly when GDP growth in developed markets is in the 2-3 per cent range. Emerging markets remain the key hunting ground for FIIs. What we have seen in the latter part of 2006 is a P/E re-rating towards high growth markets such as China and India in appreciation of the strong earnings growth available to companies.

One of the issues in the market has been the narrowness of the rally. Only a handful of stocks have contributed to the major part of the rally since July 2006. FII money has focussed on large-cap stocks that are highly liquid. At some stage it will look at alternatives and, additionally, retail money will show higher conviction, setting the tone for a rally in mid-cap companies.

OptiMix

The bid for Corus took the market by surprise. The real issue is whether the consolidation will result in better stability in pricing. Having said that, the market seems to be concerned on the `what-if' scenario, especially "what if better pricing of steel industry consolidation was a romantic myth rather than born in reality?" Other steel companies across the world also rallied before the bid and therefore there was this sense of belief that the cycle would hold. That is the ultimate hope, but one hopes that that did not influence management action and the synergies do justify acquisition. What is important now is that assets are unlocked by selling stakes in listed entities to get the much-needed finance and keep dilution to the minimum. In the end, what was won or lost is not the function of the headlines made, but the interests of the shareholders concerned.

Franklin Templeton Investments

Is the index — more fairly valued than ever — all set to come off its highs? We come from the school of thought which believes that rather than looking at the absolute level of indices, it makes more sense to look at individual stock valuations. P/E multiples should be seen in the light of growth potential. From the earnings point of view, Indian companies never had a better time than this. Companies across businesses have been posting record profits, revenues, cash-flows and order-books. The outlook is even better. When we start digging in the mid/small cap

universe, several quality companies are available at a discount to their large-cap peers. They provide potential investment opportunities, with a high growth and re-rating potential. We must thus take comfort from the fact that India provides a large and an ever-expanding investible universe.

PruICICI Mutual

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