‘Time to buy equities'

Negative news flow from Europe has now peaked out after the formation of new governments in Greece, Italy and Spain, says Mr Sandip Sabharwal, CEO – Portfolio Management Services, Prabhudas Liladher Pvt Ltd. Mr Sabharwal gives his take on the market turbulence and where the markets are headed.

What has led to the steep market fall in recent sessions?

The markets have fallen due to a combination of global and domestic factors. In the Indian context, domestic factors are dominating and have led to India being one of the worst performing emerging markets since the bottoming of the global markets in early October. The main reasons for this have been policy paralysis, the unbridled fall of the rupee and the continuous tightening by the RBI in the midst of slowing growth. While central bankers globally are cutting rates and increasing liquidity, the RBI has hiked rates and the economy has come to a virtual standstill.

Do you now see a direct correlation between the rupee decline and selling by FIIs? Is the rupee dip a key trigger for the current market fall?

This is one of the factors. There has not been any large sell-off from FIIs recently as there was no large scale buying in any case. Do you expect a local rally driven by liquidity if Europe concerns abate?

I believe that the negative news flow from Europe has now peaked out. It is now only a question of stability and confidence coming back. Negative news flow from Europe is likely to subside as it happened with news flow from the US after the downgrade of the country's rating.

What should investors be doing in this market? Should they stay out?

The markets are looking extremely cheap from a long-term perspective. I do not see the markets correcting much below 15,000 for the Sensex and 4,500 for the Nifty, at which levels markets will be trading near the lower range of historical valuations. The worst in terms of economic growth, inflation and interest rates seems to be peaking out and my view over the next one year in terms of the worst and best case is 15,000 for the Sensex at 12 times price earnings (PE) ratio and 26,000 at 20 times PE ratio on 2013 earnings.

Where do you see opportunities?

Opportunities lie in large-cap and mid-cap segments. A large number of companies with strong brands or franchises are available extremely cheaply. There are a huge number of mid-cap companies available today that can double or triple over two to three years. However, investors need to be patient. Exactly about a year ago, when the markets were 40 per cent higher, there was huge euphoria and no one could see any negatives. Today, negatives are abound and this is the time to buy equities.

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