The Hindu Business Line : India will continue as ‘buy at decline’ market

Mr Soumendra Nath Lahiri of DSP ML Mutual Fund suggests that investors should now focus on large caps as market breadth is narrow. However, with valuations at 17.5 times FY09 earnings, investors can buy on declines, as markets will consolidate at these levels. Excerpts of CNBC-TV18’s exclusive interview with Mr Lahiri.

How do you feel about the markets at 17000? Tactically, how will you approach the markets right now?

The market has risen quite sharply in the last week and if one looks at the breadth in the market it’s been very narrow. When the markets hit all time high, close to 40-45 per cent of the stocks have hit their all time highs. To that extent, the leadership in this rally has been narrow.

We have concentrated our portfolios more towards large-caps at this point in time, where we are seeing traction because of the strong liquidity flows.

What’s your sense of how the next few months might shape up, because the liquidity factor and money flows have just been too much to ignore for the market in the past ten odd days?

If one looks at the market today, fundamentally the Indian market is trading close to 17-17.5 times FY09 earnings. People will start discounting 2008-09 earnings at this point in time. If growth remains strong as it has been in the past, the Indian market will continue to be a ‘buy at decline’ kind of market. Given the fact that a lot of people are seeing the Indian markets to be a good emerging market in terms of strong corporate performance, I wouldn’t think one should be too worried about the levels. One could see the markets consolidate around these levels or maybe probably correct by 5-6 per cent. But that’s an opportunity to buy. That’s the way we look at this market.

What do you expect the broader market to do over the next three-four months?

We think markets from hereon will consolidate, pause a bit, and if earnings grow at the 16-18 per cent that we are talking about. The market should track that kind of earnings growth, there shouldn’t be any problem. So, in a year’s time from here, one could look at a 15 per cent return even from these levels.

With interest rates peaking out, are you re-looking at the interest rates related stories right now particularly autos and real estate?

I think our interest in stocks in those two sectors have increased. We are seeing more money moving into those two sectors at this point in time.

What have you done with funds that have positions in the technology space?

In the technology space we have carefully looked at the overall sector, picked out stocks where we think earnings growth is going to surprise on the upside, that’s within the mid-cap space. The large-cap space has pretty much under performed the overall broader market, so I think one could pick any name from that space. So together with the mid-cap basket of stocks, where earnings growth is superior and the large-cap names, one could see some buying and value emerging in that sector.

How do you think domestic money will move from hereon because there has been a gush of mostly FII cash that this market has been running on, mutual funds have been selling in bits. How do you expect the domestic flows to shapeup?

If you look at the number of NFOs that have been launched in the last three-six months, there’s quite a bit of money even waiting in the sidelines. If one were to see the market correct from this point, maybe one would see lot of domestic money also being put to work.

There has been a strong run up in steel stocks. Is this a good time to book profits?

Not really, if one looks at the demand environment in this space, it’s been fairly strong. Prices have been firming up. So given the environment, and consolidation in the sector globally, one could expect the prices to remain firm or move up gradually.

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