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BW Businessworld

Wait And Watch

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The stockmarket may go down further but there is value in the Indian equity market and that is the reason why for some time now Sudip Bandyopadhyay has been advising his clients to slowly move their money into select stocks in the FMCG, IT and pharmaceutical companies. "We are advising clients to invest 30 per cent of their money into equities, followed by 20 per cent in gold and to keep the rest 50 per cent in fixed income which can be moved easily into equities as and when we find the opportunity," says Bandyopadhyay.

Talking to Businessworld, Bandyopadhyay says he concern about the Indian market stems from the inaction of the government due to policy inertia. As for global financial market, he is more worried about the euro zone rather than the US and China. He feels problems are addressed quickly in both US and China, compared to euro zone which has too many political leaders taking too long to decide for addressing the problems. It could be another 6-8 months before something concrete emerges from the euro zone, says Bandyopadhyay.

Excerpts from the conversation:

What is your take on the Indian equity market at a time when the Sensex is holding well above the 16,500-16,800 levels? Do you think it is a good time for investors to book profit (if any) or losses and stay on the sidelines as there is a lack of trigger in the market? And why?
The equity market continues to remain extremely volatile and we feel that, by and large, it will be better to stay on the sidelines in the absence of any positive trigger. Global economic scenario remains uncertain with Greece and Spain continuing to face problems. Signals of slowdown from US and China is also making investors uneasy. On top of that, the domestic macro economic situation remains unfavourable due to policy inertia, high cost of funds and deficit in monsoon. Factors which may change any of the above are not yet visible. Under the circumstances, it is advisable to be cautious and only take exposure in select high growth companies. Bottom-up approach of stock picking should be adopted.
Do you think RBI governor will bite the bullet and cut rates on 31 July 2012? What is your view take of the forthcoming RBI policy and why?
It is unlikely that RBI will reduce rates considering their focus on controlling inflation at the cost of growth. Though unfortunately, the high interest rate medicine has not worked over the last two years, RBI continues to believe in the same. In spite of continuously increasing interest rates over the last two years (barring a few marginal reductions), RBI has failed to tame inflation and has only succeeded in bringing down the economic growth from around 9 per cent to around 6 per cent. High interest rate has acted as a dampener for incremental economic activities leading to slowdown in every sector of the economy. However, the single-minded focus of the central bank in controlling inflation at any cost and also the use of a single weapon (i.e. continuously increasing interest rates) have led to a stagflation like scenario, in India.
The rupee is at an all-time high. What is your view on the currency and its impact on the equity market, economy and inflation? What are your concerns for the Indian equity market?
The sharp depreciation of rupee has adversely affected both economy and the capital markets.  While relative inflation between economies determines appreciation and/or depreciation in currencies, unbridled sharp movements deteriorate market confidence in a country's monetary management.  Unfortunately, initial inaction of the RBI, once the currency started deteriorating, was primarily responsible for its sharp depreciation. Unless rupee stabilises, foreign investors will be skeptical about investing in Indian markets as their capital market gains can very easily get wiped out through currency depreciation. In the next 6-12 months, I see the Indian rupee hovering in the range of Rs 52-54 against the US dollar.

Do you think RBI should be interfering in the currency market?
RBI should definitely interfere in the currency market.  The central bank in every country has a role to protect unbridled movements in the currency.  Unless the central bank steps in and ensures that the currency is in consonance with its true relative value, the market will lose confidence in the currency. Thus even more than action, the intention of central banks articulated through their pronouncements, is more important signal to the market.

What is your view on the overall financial market? Do you think the crisis in Europe as well as US is behind us and why?
Global financial markets continue to remain choppy.  Our view is that the same volatile situation will prevail for some more time.  The crisis in Europe, US and also China is definitely not behind us.  The problem is structural and one cannot hope to solve the same overnight.

What is your view on gold and crude oil? Both are tending to rise from its near time lows. Do you see them rising further and why?
Our view of gold is positive.  We believe that gold will touch over the next 3 -5 years the $2,500-per ounce level.  Apart from investment buying and speculation, the central banks across the world are increasing their gold reserves.  This will lead to a secular uptrend in gold prices. Our view on oil is not bullish.  Significant discovery of alternate reserves of gas (shale block) in North America has led to reduction in demand for oil.  Fresh oil discoveries have also helped this cause.  We see the long term effective price of oil at around $100 per barrel (Brent crude).

In the current market, where will you advice investors to invest? Don't you think it's better to be sector and market-cap agnostic in this market or stick to the large-cap stocks. What's your view?  Which are the sectors ones you are avoiding?
Our view in the current market is better to be stock specific. It should also be sector specific.

We believe that time for value buying has not yet come and the markets may further correct from their current levels.  Investors should stick to growth stocks, available at attractive prices.  As for sectors, one should look at Pharma, FMCG and IT.  These stocks may be available at attractive prices across large cap, mid-cap and small cap universe. We have been avoiding metals, infrastructure, capital goods and real estate stocks for the last one year.