“We Can Expect Sensex Levels Of 45,000-50,000 In 5 Years”

Capstocks & Securities (India) was founded by its Managing Director Rajendran Velayudhan Chettiar in 1989. Capstocks & Securities, the second oldest existing stock broking firm in Kerala, operates from its headquarters at Trivandrum and has a network of 180 branches covering all over Kerala, Tamil Nadu, Karnataka, Andhra Pradesh, Maharashtra, Gujarat and an overseas branch at Sharjah, UAE. Capstocks is a member of NSE, BSE, MCX, MCX-SX and NCDEX. It offers all services, including equities, derivatives, commodities, currency derivatives, equity research, internet trading, Portfolio Management Services, and also has an NBFC for funding purposes. Excerpts from interview with MD R. V. Chettiar…

FY2009–10 is one of the best years in terms of return for the Indian stock market. But retail investors are not participating in the market. What may be the reason behind this?
The reason is very simple. The last bear phase which started in January 2008 and lasted for almost 15 months, saw the retail confidence being completely eroded. Though the Sensex had come down by around 60 per cent, the portfolio of most retail investors had eroded of as much as 80 per cent as most retail investors tend to buy mid-cap and small-cap shares, which had been the most beaten-down sectors. Now these retail investors were waiting to at least recover a part of the money they had lost and had sold off during the last financial year. If the government announces two or three big ticket divestments at attractive pricing, like the recent Coal India IPO, with some money on the table, retail investors will get attracted and will come back to the markets.

What do you think are the major risk factors threatening to derail India’s growth trajectory?
Any meaningful risk to the Indian economy is likely to emerge more from a global angle only, as FIIs are the single force taking the markets up. Many European countries like Greece, Spain and Portugal were on the verge of sovereign default. If that happens it may shake global investors’ confidence.The US economic data is not very encouraging and there is fear of a Chinese slowdown.

Which sectors are you bullish on?
Currently, we are focusing on three major sectors: financial, auto and auto ancillaries and domestic consumption based companies. In many cases, the growth story is intact, but valuations are slightly on the higher side as they are trading at high P/Es (especially in FMCG sector).

How are Indian stock markets likely to perform over medium term?
Over the medium term the Indian stock markets are likely to do extremely well. The earnings of the 30 Sensex shares were growing at around 25per cent on an average for 5 years from 2002 onwards. Only in 2008-09 we saw a flat growth. In 2009-10, we saw a growth of around 10 per cent and from 2010-11 onwards [PAGE BREAK]

we are likely to see growth rates in excess on 20 per cent. If this be true, then in 3 years time, we can see a Sensex levels of 30000-35000 and in 5 years time we can expect 45000-50000 levels.

What, according to you, should the investors do at this point in time?
My advice to medium-term investors is to stay invested. Yes, there may be a correction of a few thousand points in the Sensex, but when that will happen and to what extent is anybody’s guess. Well, when we are foreseeing a Sensex level of 35,000-40,000 in the coming years, what does a correction of a few thousand points matter?