Uncertainty Factored In Current Market Valuations

Motilal Oswal, Chairman and Managing Director, Motilal Oswal Financial Services shares with DSIJ his views on the index levels till next Diwali, and advises retail investors to capitalise on equity opportunities at this juncture with systematic investments, instead of shying away due to market uncertainties

Where do you see the Sensex till Diwali 2014? 

The Sensex has been range-bound during the last four quarters and I see this trend continuing for some time. Trends in global asset categories, fluid foreign fund flows, exchange rate volatility and growth-inflation conundrum will keep the Sensex volatile, but within a 2000-point range in the near term. Yet, there are several factors that could drive the markets up. 

Firstly, the valuations are below long-term averages. Secondly, there is a good possibility of an upward revision in earnings estimates. Thirdly, rupee depreciation and growth slowdown, which act as self-correcting mechanisms in India, appear to be working. Fourthly, there could be positive surprises on the political front. Hence, it is possible that the next Diwali might see the Sensex at new highs. 

What are the major triggers that you are looking forward to in the next Samvat? 

The first thing that comes to mind is elections. While India will be facing general elections latest by May 2014, Assembly Elections will be held in five states during November-December 2013. While the general elections will be keenly watched, the Assembly Elections assume significance because the results could be a referendum for the General Elections, highlighting the national mood. 

A new RBI governor has been appointed. The rupee has stabilised, also aided by delayed tapering of the US Quantitative Easing. I would look forward to some easing of the recent monetary tightening and consequently, lower interest rates. Also, good monsoons should bring down inflation and rejuvenate the rural economy with more disposable income in the hands of rural consumers.

With the new government coming in, do you see significant changes in the investment climate? 

The second innings of the UPA has been marred by corruption scandals, decadal low growth, inflation, rupee depreciation, etc. hurting investor confidence. There appears to be a strong anti-incumbency factor at play, and the NDA’s projected Prime Ministerial candidate is making head-lines. However, the emerging political alignments do not currently inspire much confidence. There are fears that a weak and potentially unstable coalition government could be formed. These uncertainties are factored in current market valuations. If there is a positive surprise on the political front and a strong/stable government is formed, investor confidence would be boosted and the Sensex could go up meaningfully.

Which are the sectors or stocks that you are betting upon for the next one year? 

I like Healthcare as a sector. As far as individual stocks are concerned, I like Infosys, ICICI Bank, Bharti Airtel, BPCL, Hindalco, Hero MotoCorp and ACC. 

What are your suggestions for retail investors keeping the current market scenario in mind? 

Despite the uncertainties abound, I believe retail investors should not shy away from equities. A relatively low-risk/low-involvement strategy for lay investors is systematic investment in a good index fund. One could begin with an amount as small as Rs 1000 every month. Returns from religiously following even such a simple strategy over five to 10 years can be impressive.