Markets are in a neutral zone now. Only policy intervention and earnings revision by corporate India can provide it a forward thrust, says Krishna Sanghvi, Head of Equities, Kotak Asset Management.

In an interview withBusiness Linehe shares his investment outlook for the coming year. Excerpts:

What is your outlook for the markets at this point?

We are now in a very neutral zone. We are neither too cheap nor too costly.

There is approximately 12-15 per cent earnings growth outlook for Sensex for FY13.

So I don't see any major upside or downside from here. It is in line with the last 7-8 years' average also.

We now need some sort of a support from either a major earnings revision, or policy intervention in terms of monetary easing for the markets to be higher.

But with oil prices hovering high, do you think rate reductions are a possibility in the near term? What's your expectation from the April policy meet of the RBI?

I think a little moderation in rates will come in.

It may not be a high number to start with, but generally for the entire year FY13, a 75-100 basis point reduction is quite a possibility.

Essentially, it is an easing process, so I will not be worried if it is going to be a rate reduction or monetary easing A CRR reduction is also equally good for liquidity.

How do you think the fourth quarter financial performance of Corporate India will be?

I don't think markets are too worried regarding fourth-quarter performance at present. FY12 is now almost done with, and I don't see any material implication.

But if we have to quantify, on a year-on-year basis, we can see an earnings growth of as much as 20-25 per cent for the general market, partly because of last year's low base.

Index earnings can be as high as 18-20 per cent in the fourth quarter. But the bigger issue at present is FY13 outlook for companies.

So, which sectors do you think would fare well in FY13?

With rate reductions and monetary easing on the cards, I think banks will do well. Within that, the private sector banks are better-placed. IT will see a normal growth, but nothing out of the ordinary.

Another sector that could do quite well is pharmaceuticals. We also expect earnings performance for capital goods to be good. But they will need order book accretion, which is not happening . Auto and FMCG should have a decent year.

Overall, the outlook for globally-linked sectors, such as metals, would remain uncertain, while those related to the domestic economy would be stable.

Large-caps or mid-caps? Which makes a better investment bet at present?

On an incremental basis, we see more value in midcaps than large-caps. But it is largely a sector-specific judgement.

In some sectors, we expect the large caps do better, and in some midcaps.

For instance, in telecom and in IT, the midcaps would do better, while in FMCG large caps are better-placed.

(Queries may be e-mailed to >mf@thehindu.co.in .)

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