MUMBAI: If you plan to stay invested in equities with at least a two-year horizon, fasten your seat belt and pay no attention to the occasional air pockets that the market is likely to run into over the next one year. But if you believe frequent churning of portfolio is the best way to maximise returns, think again.
With Sensex breaking past 1000-point milestones with blistering pace, is it time to rejoice or be cautious? To crystal gaze on what investors should expect in the near term, ET held a Roundtable of some of the biggest names on Dalal Street.
The participants were Rakesh Jhunjhunwala, the reigning Big Bull of Dalal Street, astute deal maker Vallabh Bhanshali of Enam Securities, star fund manager Nilesh Shah of ICICI Prudential, veteran BSE broker Parag Parikh, Narayan Ramachandran, MD and CEO of Morgan Stanley, Andrew Holland, managing director of DSP Merrill Lynch and Nirmal Jain, CMD of India Infoline.
The session was chaired by Gul Tekchandani, a star fund manager during the late 90s, who now is pursuing his interests in the real estate sector. Their message is clear: The India growth story still has enough steam left, but be prepared for some testing times and lower returns from your equity holdings over the next one year.
Politics may not be a talking point in the market for the time being, and the general perception is that India is least vulnerable among emerging markets to a likely recession in the US. But both these factors hold key to the trend over the next 6-12 months, felt the participants.
“I sense trouble around the corner,” says Rakesh Jhunjhunwala, who feels that markets around the globe may be underestimating the extent of the slow down in US economy. “I would compare the Indian economy to the Chak De! story. But I expect some hiccups over the next one year; we could see some real testing times,” he says, adding that he expects India to outperform in the long run.
Andrew Holland expects the returns from equities to be between 5% and 10%. “I think 2008 will be a difficult year for equity market investors around the globe,” he says. Growth prospects, he feels, around the world do not look too good what with many parts of Europe showing signs of slowdown, in addition to the US. Then there is China, where the government is trying to rein in the runaway growth.
“In India, there is talk of mid-term polls and this could prompt local companies as well as external (portfolio) investors to defer their investment plans,” he says. And lower interest rates globally may not be of much help either.
“History has shown that emerging markets do not do well in a falling interest rate scenario as they do in a rising interest rate scenario,” feels Mr Holland. While the Sensex has rebounded over 3,000 points from its August lows, some of the participants felt that investors are beginning to get complacent.
“Politics will be the key factor to watch out for over the next six to 12 months,” says Vallabh Bhanshali. “A funny outcome of the elections, if they take place, will cast a shadow on the market irrespective of what people say. The underlying realities have not changed, in a manner of speaking, over the past 16-17 years since the reforms process was initiated. But whenever strident political statements are made, it tends to make the market jittery,” says Mr Bhansali.
The ferocity of the recent rally may have driven bears into hiding, but that is not a healthy sign for the market, feels Nirmal Jain. “The rise from 14,000 to nearly 17,000 points has been so sharp that short sellers have been trapped badly. This has resulted in there not being sufficient short positions in the market. This is not a good sign as it makes the market vulnerable to any adverse event in the short term,” he adds.
