‘Valuations are attractive right now’

In an exclusive interview to the Business Line , Sunil Jain, Vice-President, Equity Research, Nirmal Bang Securities, speaks on various happenings in the equity markets. Excerpts:

What has contributed to the recent movement in global markets?

The new PM in Japan has taken charge in November with a clear cut policy of improving their economy through excessive quantitative easing like the US. So a lot of liquidity got generated in Japan and it went to a lot of different markets across international markets which have performed very well since November.

This situation is likely to continue with the appointment of the new Bank of Japan governor also expected to be in favour of additional quantitative easing. This will depreciate yen and infuse further liquidity in the international equity markets.

Moreover, this has been helped by improvement in economic data in the US so the expectation there is built up that their economy would keep on improving in the coming period. But . this could go wrong in the form of inflation getting stoked as a result of additional liquidity not getting translated into real economy by way of consumers buying or companies spending.

What is your outlook on Indian markets going forward?

Market is not likely to perform very well in the near-term mainly because of international factors which too have a saturation point. For instance, yen depreciation has its impact but it may not be that pronounced in the coming period as we believe yen’s optimum level has already come. Secondly, we don’t expect the coming fourth quarter results to be good as several problems still remain with no signs of improvement.

What are the reasons for your bearish outlook on the upcoming corporate earnings season?

The initial problems we saw in the capital goods and infrastructure sector are now getting translated into lower demand on the consumption side. This is reflected in poor demand in several sectors such as auto, cement, white goods and FMCG business. Companies are not coming out aggressively to spend as they are seeing risk to their earnings going forward.

What is your advice for retail investors?

We don’t see markets going down substantially from here. So at this juncture, investors should identify quality stocks and accumulate them over a period. IT sector is a good bet and private banks and a few auto and auto ancillary stocks can also be seen.

What strategies are you following to keep afloat as a brokerage in this tough business phase?

Acquisitions of other brokerages house doesn’t make sense in our industry as the entry barriers are very low and there is no hurdle for anyone to stop anyone else from entering the business. Instead, we are concentrating on keeping our business structure lean with limited fixed cost and higher variable cost.

Your view on MCX-SX?

We have not seen much action on the new exchange as they may be waiting for market to improve.

What is your view on current valuations?

Overall equity market valuations are attractive right now. If you take the average of last 10 years we are below 10 year average valuation.

How do you rate the present regulatory environment?

Regulatory environment which developing in India is dynamic. You come to know of the problem and then you find out the solutions. SEBI has come out with regulatory changes in the past, improvement are still possible. manisha.jha@thehindu.co.in

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