‘Valuations have corrected to attractive levels'

R. Yegya Narayanan Coimbatore | Updated on December 22, 2011 Published on December 22, 2011

We are not de-coupled as far as the investor sentiments and risk aversion are concerned. — Ms Swati Kulkarni, Executive Vice-President and Fund Manager — Equities, UTI AMC, Mumbai

While Wednesday's market surge would provide some relief to the harried equity investors, the big question is how long the pain would last before stability (or sanity) returns to the Indian markets.

In an interview to Business Line, Ms Swati Kulkarni, Executive Vice-President and Fund Manager-Equities, UTI AMC, Mumbai, exudes confidence that Indian economy has many growth drivers that would benefit the investors in the coming decade. Excerpts:

How long do you think the pain would last?

Managing inflation has been a priority of RBI since April 2010 — 375 basis point increases in Repo rate. The GDP growth forecast for FY-12 has also moderated from 8.5 per cent to below seven per cent during the period. However, we expect moderation in inflation (due to favourable base of high inflation last year) and the monetary policy stance may focus on streamlining growth by lowering policy rates by the end of the first quarter of fiscal year of 2013.

With the recent qualitative measures from RBI to address the speculative activity, the rupee has started to stabilise. The BSE sensex at 15,200 is 13 times FY-12 and 11 times FY-13 consensus EPS estimates and is valued attractively. Hence, we are positive on equity from 2-3 years horizon, though in the short term the market will remain volatile.

Present global crisis is different from 2008 after Lehman Bros episode but a solution seems to be more difficult . Why?

Post 2008, the easy solution for all the problems was Government stimulus. US resorted to quantitative easing — the marginal utility of these measures is said to be diminishing. These have not been effective by and large to stimulate investment-led growth which could have helped in increasing Government revenues through taxes, etc. With worsening Government deficits and high debt to GDP across nations and the political unwillingness to implement strict austerity measures, the resolution seems to be taking more time.

Do you think our markets have de-coupled from global developments?

I think we are not de-coupled as far as the investor sentiments and risk aversion are concerned. The correlation among the markets actually increases in times of crisis. We may have periods of de-coupling especially if the Government is able to push reforms.

The infrastructure story has been a huge let down in the past two years. Do you expect the sector to recover in the near future?

Infrastructure is a long gestation investment, more so in a democratic set up like ours where you need to generate consensus. In hind sight, one can argue that the valuations were high as the earnings were downgraded later.

The growth momentum slowed down post 2008 on account of global credit crisis and domestic issues such as delays in land acquisitions, environmental clearances, coal availability, etc. Slowing growth, execution delays resulted in worsening balance sheets — rising debt and working capital needs. .

What is the likely impact of the Direct Taxes Code on the Indian bourses?

We will have to wait for the final draft/ additional information on likely implementation of DTC to assess the impact.

What is likely to drive the Indian equity markets in the coming decade?

The domestic oriented sectors would continue to drive the Indian equity story for the next decade.

The growing young working population, rising income levels and urbanisation would be the drivers of consumption theme.

Also, we will need huge investments in building infrastructure to sustain GDP growth rate of above eight per cent. So, there will be opportunities in healthcare, education, infrastructure, banks, etc, besides consumption segment.

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Published on December 22, 2011
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