Puneet
Nanda<http://www.moneycontrol.com/mccode/news/searchresult.php?search_str=Puneet
Nanda&datesel=2>, CIO, ICICI Prudential Life
Insurance<http://www.moneycontrol.com/mccode/news/searchresult.php?search_str=IC\
ICI
Prudential Life Insurance&datesel=2>, said the market sentiment is better
than it was in March. "It is likely to move 10% on both sides."
Banking has shown the best earnings growth among all sectors, Nanda said.
Investors should avoid oil companies, he added.
*Excerpts from CNBC-TV18's exclusive interview with Puneet Nanda:*
*Q: What is the prognosis for this month?*
A: The headwinds are pretty confusing. The big concern for Indian equity
markets right now is
inflation<http://www.moneycontrol.com/mccode/news/article/news_article.php?auton\
o=338040#>,
primarily commodity and to some extent food prices. The global scenario
though is looking much better than what it was a couple of months back. So,
I would say that global cues are better.
The result season is just about over and is broadly inline. Earnings of some
sectors have been good and some not so good. In the short-term, the view is
quite confusing to say the least. There is a slowdown in corporate earnings
growth, which will remain at about 15% and that is the kind of expectations
one should have, because in the long-run, markets will reflect the corporate
earning growth rate.
*Q: How are you feeling about this entire commodity scare because it has
already shown up on the inflation figures? Do you think it will soon start
showing up by way of business inflation and growth targets being scaled
down?*
A: It is a big issue, and a very big concern. Unfortunately, it is an issue
not just in India but around the world. Although the government is trying to
take a lot of steps, there is not much that the government can do in India,
inspite of all the steps to try and control prices or directing companies to
do that.
Globally, demand far exceeds supply. Our own analysis shows that it is more
investment-led demand than consumption-led demand. There is a lot of
speculative elements being built in, so to that extent globally there were a
lot of people who were playing the long-inflation short-dollar kind of
trend. As long as the dollar was weakening, interest
rates<http://www.moneycontrol.com/mccode/news/article/news_article.php?autono=33\
8040#>in
US were coming off. It was a trade that worked well.
Now, given that the Fed is pretty much at the end of its interest rate
cycle, the dollar has also started appreciating. So, some of those positions
will be unwound and if that happens, then over the next three-six months
there is a pretty good chance of some amount of softening in commodity
prices.
*Q: In the interim, while the market is a bit confused and indecisive, what
would be your strategy in terms of investing in the market? Would you infuse
fresh capital or just churn around your portfolio?*
A: No, at times like these it is best to think about fundamentals. It is
best to think a little bit longer-term, so take your calls based on
valuations rather than on the noise in the market. Unfortunately, because of
so much newsflow that keeps coming around, we tend to get swayed by what is
happening in the short-term and losing sight of the long-term. It is a good
time when clearly there is no view in the short-term. So, one should focus
on the long-term and then take one's call based on fundamentals.
*Q: What about the rate sensitives right now, how are you approaching them?*
A: Among the rate sensitive sectors, one is banking, the other is perhaps
real estate, then auto. There are different dynamics playing in each of
them. On the banking side, it is more because of concerns on derivative and
things like that, which are completely overblown. This sector was beaten up
very dramatically over the last two-three months. But as the result season
has shown, the impact of these events is very minimal. If anything, the
sector has shown the best earnings growth across all sectors. For the market
as a whole, earnings growth is somewhere around 18-20%, but for the banking
sector it is twice as much. So, that is a sector worth looking at inspite of
what is happening on interest rates.
There are different issues affecting the other two. If interest rate soften,
then real estate is going to benefit but there are issues on valuation as
well as on the amount of absorption that is possible given the supply that
is coming up. In fact, there are concerns on the execution front. Because of
that the views there will be conservative.
On the auto side, again interest rates would have helped. Right now, the
interest rate view is at best neutral. If anything, the consensus is
building towards slightly higher interest rates from here on, plus the fact
that there is a margin squeeze. So, the view is not so great on the auto
sector either.* *
**
*Q: As a space, how are you approaching oil and gas from the listed stock
universe?*
A: It is a very tough call to take, given the way oil
prices<http://www.moneycontrol.com/mccode/news/article/news_article.php?autono=3\
38040#>are
moving up. One would have liked to take a definite call on that. But
the
fact is that in India prices have got nothing to do with what is happening
around the world. It is completely controlled by the government and today
also there is this news report about them being asked to bare more losses.
So, the prognosis clearly is not good for the oil companies in general. For
the economy, there is some good news as the pain has been postponed. The
immediate pass through is not going to happen and hence the economy is not
going to bare the pain. Of course, there will be cost in terms of higher
fiscal deficit and lot other problems will come later. But at this point, it
is best to stay away from oil companies.
*Q: Sentiment seems to have got a battering this year for equity markets,
what is your sense of how retail interest might move from here? Do you think
people will start leaning more towards fixed income products and probably
not so much towards an equity-linked one?*
A: Right now, it is very difficult to say what will happen. For the first
time, we are seeing a downturn. Over the last three-four years, we have seen
some sharp corrections including the one in May 2006. Initially, people get
worried and sentiment takes a battering, but eventually people do realize,
and that realization has daunt pretty effectively, that in the long-run if
one has to beat inflation and meet one's financial goals -whatever those
goals maybe – then one cannot stay away from equity.
The adherence to one's ideal asset allocation becomes even more important in
times like these, i.e. what we think our customers believe in and that is
what we try to propagate. The sentiment is not so great but if you look at
it from where it was in March, since then there has actually been a decent
rally in equity markets. I would say sentiment is not as bad as it was in
March. If things stabilize from here and there are chances of the markets
stabilizing, I am not saying the market is going up sharply, but it will
stay in a plus-minus 10% range. Once that happens, investor interest will
start getting revived
ROhit
Taken from Moneycontrol.com
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