News: 'Indian markets remain a compelling for global investors'

(BL 14/05/2007) Kolkata - As an emerging market, India remains quite a compelling proposition for global investors, argues Seshadri Bharathan, Director - Stock Broking, Dawnay Day AV Securities Pvt Ltd. Here, he refers to key issues, ranging from volatility in the mid-cap segment and the distinct possibility that international events will have a bearing on the local market.

Excerpts.

The market has inched up again to 14,000 points. This seems to be a recurrence of sorts: up to 14,000 and beyond and then a slide. Is this quite expected?

As the old saw goes, history repeats. The slide after Sensex touched 14,000 points has become evident again. Taking Nifty for reference, it gave an all time high of 4245.30 on February 8 (corresponding to Sensex going above 14,000) and retreated to 3554.50 on March 5. It again touched 4217.90 on April 25. So far, it has made a lower top, as it did not cross its all time high level.

The same was repeated in the case of the BSE index. Currently, we can say that Nifty is moving in a range of 3980 - 4185. Breaching this range on either side should at least lead to a further movement of 200 points on that side.

The Sensex is trading at premium valuations compared to some of its peers in emerging markets. In this backdrop, what is the way ahead for Indian equities? Is there a case for paring down short-term expectations?

India as an emerging market is quite compelling for global investors. Cases such as ours do present premium valuations at times. And that holds true at present. With the purchasing power of the middle class improving and forming a larger chunk of the total population insofar as contribution to GDP is concerned, premium valuations are not out of place.

We may see consolidation at times but such valuations may still be found. Most of the corporates have given better than expected earnings. Their prospects look good too, a trend that will become stronger with our focus on infrastructure development. Corrections, if any, will take place due to international events. There is, after all, increasing globalisation all around and international developments have their significance.

The volatility in mid-caps continues. How do you view the situation? Do you in view of this recommend a scale-down in exposure to mid-caps?

Mid-caps will continue to remain volatile. In February, when the market fell, mid-caps took a beating. It must be noted that the current rise has been fuelled principally by certain large-cap stocks. Most of the mid-caps have missed out on the rally. Hence, it appears that if markets decline, value buying may well emerge in mid-cap stocks.

Are there sectors you recommend investors to go overweight on at this juncture? Conversely, where should they be underweight on?

Well, as we see it, oil and gas marketing companies look good for investments due to decrease in crude prices and the appreciating rupee. Investors may consider avoiding two-wheeler auto stocks because of pressure on margins and increase in interest costs. Sugar stocks can be kept on watch for buying on declines as they have almost discounted the worst.