Future Appears Bright

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The Indian markets are riding high on the growth trajectory and the domestic consumption story. As for valuations, we are fairly placed compared to other emerging markets. The PE multiples for Indian markets are on the higher side com-pared to other emerging markets.

We have recently crossed the first quarter earnings season for the current fiscal 2011. Here, I must mention that before the results we come out with our estimates and the results have been in line with the Unicon’s estimates. In the first quarter it is seen that some pressure has been witnessed on the margin front in sectors like IT, commodities, infrastructure, etc. and this trend may continue in the next quarter as well. We feel that the increase in input cost has played a deterrent role for commodities. The other sectors that have done well are media and banks and we believe that these sectors are likely to perform well going forward.

Indian industries are passing through the capacity expansion mode and the capital expenditure cycle is likely to be a trigger. The important thing that will be in focus is the execution. If the companies are able to execute the expansions plans in time then that is likely to act as a trigger for the market. The second trigger that the market will look forward is the credit offtake. Here we would like to see increase in credit offtake.  The other important trigger for the market will be monsoon which seems to be picking up well, of late.The other important factor to watch out for would be inflation.

India is a growing economy and a higher inflationary scenario will be prevalent. In fact, inflation is better than deflation. As for the food inflation, we believe that the inflation levels of food may ease going forward owing to good monsoons. Food prices are likely to come down. We also believe that the inflation is likely to witness range-bound move and by the year end it may come down to the 9 per cent range. As for the effects of inflation, the sectors that are going to feel the heat are consumer durables as the purchasing power of consumer is on a decreasing side. Coming to the interest rate scenario we believe that there could be a hike in interest rate of 25 to 50 basis points range but that is not likely to impact the banks as with the increase in the credit off take the effect of the interest rate hike will be negated.

At the global front we believe that the markets across the globe especially the developed economies are giving out mixed cues. The data in the US are also not showing anything encouraging with fending off effect of the first stimulus package. Therefore, we believe that the recovery will be a gradual one instead of a ‘V’ shaped recovery. The markets will see recovery only in 2011 according to our prediction.

At present we at ‘Unicon’ prefer domestic-oriented sectors like banks, media, pharma and infrastructure. In the banking space we like Bank of Baroda, Oriental Bank of Commerce and IndusInd bank from a longer term perspective. We are also bullish in Pharmaceuticals and stocks like Opto Circuits and Biocon. Infrastructure sector holds significant potential from a longer term perspective and we like Patel Engineering, Supreme Infrastructure and IVRCL in this space. We suggest retail investors to buy and stay invested for a longer term (one-year-plus horizon).