Returns from equity markets to be moderated

Express. 8216;What we need as a nation is more long term FDI money rather than short term FII flows. The flows can be disruptive not only to equity markets but also the currency markets in the country8217;,he says. Excerpts

What are your views on FY 11 numbers? Are you comfortable with the numbers and margins?

FY 11 numbers based on results declared to date are lower than beginning of the year expectations. The market will now start focusing on FY 12 growth and earnings numbers. A nominal GDP growth in the range of 14-15 per cent plus a delta for corporate sector growth is a reasonable expectation for FY 12 but there is pressure on margins in terms of raw material costs,wage inflation and interest costs.

Inflationary pressure is leading to fears of further rate hikes dampening market sentiment. How do you see the market panning out over the next 4-5 months?

The central bank has made a clear choice of controlling inflation over growth due to the high inflationary pressure which has moved from food to the core sectors now. This year hence can be a year of consolidation and expectation of returns from equity markets have to be moderated. From a long term perspective it would be a good period to increase allocation to equity.

We are half way through Q1 FY12. Based on current trends how do you see Q1 corporate profits panning out?

In a high inflation and interest rate environment there would be pressure on margins during FY 12 but for companies which have pricing power. We believe a 16-18 per cent range for earnings for FY 12 is a possibility.

May is witnessing flight of FII money after them being net buyers in April. What do you attribute this to? Also in a broader context,is there more than warranted dependence on FII money?

Relative attractiveness of US markets versus emerging markets and the interplay of currency,liquidity and commodities will always impact flows to emerging markets. FII flows have had an impact on the Indian equity markets in the short term. What we need as a nation is more long term FDI money rather than short term FII flows. The flows can be disruptive not only to equity markets but also the currency markets in the country.

What do you make of the current market ownership pattern?

If we observe the current market ownership,it reads as about 58 per cent with promoters,about 19 per cent with FIIs,about 12 per cent with insurance companies,about 7 per cent with public and 3 per cent with MFs. From a free float perspective FIIs are the largest owners at 45 per cent and hence any shift here has a material impact on the markets.

In the coming fiscal,what sectors are you positive about and why?

We are marginally overweight on the consumption and the outsourcing theme. Within consumption we are underweight on auto sector due to high base impact and rising interest rate environment and overweight on FMCG since there is strong consumption demand.