The Indian equity markets, which is trading close to its 52-week high level, has been in a tight range in September. Prabhat Awasthi, Managing Director and head of equities at Nomura Financial Advisory & Securities (India) Pvt Ltd, expects this range-bound movement to continue. He maintains his December target range for the Sensex at 29,000-31,000 and is bullish on financials as a theme for the next decade. Excerpts:

There is a lot of uncertainty around a rate hike by the US Fed. Will it happen at all?

The US will hike rates before Europe, Japan, etc, given that the US economy is in a much better shape compared to the other developed markets. I think one has seen the best of low rates. If I take a one-year view, rates will be higher from here. However, the hikes will likely be very gradual as the global data still looks very weak. We are living in a world of very, very slow growth.

What impact will it have on emerging markets, including India?

Equity markets, including India’s, will surely move as the certainty of a rate hike rises. The extent of the move would depend on how much of the hike is priced in at that point in time. However, the impact would be limited.

Firstly, Indian interest rates are much higher compared to global interest rates and our monetary policy has been relatively insulated from the low interest rate environment prevailing globally. Secondly, we are running a current account surplus compared to deficit in 2013 (and dependent on external capital).

Do you expect the new RBI Governor to go for aggressive rate cuts?

We expect status quo in the October policy and see a 25 basis points rate cut with a 55 per cent probability for the remainder of the fiscal year. With a 1.5-2 per cent target for real interest rates, the policy environment is generally more transparent now.

What is the way forward for Indian equity markets?

The market will likely remain range-bound for a while as it has priced in most of the positives (domestic as well as global) given the elevated market multiples. Our Sensex target (considering 15-20 per cent earnings and commensurate market return) in the range of 29,000-31,000 by this December remains intact.

Did you see any signs of private capex happening in the June 2016 quarter?

Sectors such as power, metals and telecom, which led the last capex cycle, are not going to be active over the next 2-3 years as they are going through serious issues of overcapacity or poor financial performance. We will surely see recovery in capex from new sectors such as power distribution, railways, solar energy, roads and automobiles, but it will be a gradual recovery as these are not sectors heavy on capex.

Have you changed, or are going to change, your investment strategy?

Our strategy has not changed much in the last six months and I don’t see any need to change it as the economic fundamentals and earnings are moving along anticipated lines. We are overweight on select cyclical sectors such as financials, oil and gas, automobiles and industrials.

Are information technology and telecom contra plays, according to you?

We have been underweight on telecom over the last 2-3 years due to competition. That does not change.

Which is that one sector you would recommend with a ten-year view?

Financials. It covers all aspects of growth, i.e., investment and discretionary consumption. It touches every sector and benefits from a generalised growth pick-up.

What are your views on the investment trust listing and the new improved regulations?

It is a very positive development. Listings will happen at lower yields than what companies are paying banks, which will help mitigate the financial burden on some companies. The nature of the instrument implies that listings will only happen for assets that are generating cash flows. Thus, only companies that have cash-generating assets will be in a position to benefit from investment trust listings.

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