Mumbai: The markets are likely to bottom out close to the Budget, before slowly moving up later in the year, Jyotivardhan Jaipuria, head of research at financial services firm DSP Merrill Lynch Ltd, said in an interview. He said investors were keeping a close watch on how the government moves to control its fiscal deficit and approach reforms. Edited excerpts:
Eye on the fisc: Jyotivardhan Jaipuria says investors are keeping a close watch on how the government moves to control its fiscal deficit.
How do you view the market performing close to the budget?
When we started the year, we were one of the few people saying that the markets will correct before the budget. This is the year where the markets would give a very flattish return with the first quarter not being good and the second and third quarters being better. When we look at the correction, we have to keep in mind what happened last year. The markets have had such a run that what we are seeing is just a small technical correction from that run.
This is the year where the market consolidates...(and) absorb(s) the whole gains we have seen last year. Nothing really changed our view on that. We are still saying the markets would probably bottom out close to the budget and then we might get a slow upward move with the second and the third quarter of the year.
Is there still enough interest among investors in some of the bigger companies? Or is the interest shifting to smaller firms?
A lot of the consumer staple companies have had a run and are not looking cheap. Hence, that is one thing investors are wondering (about). Over the last few years, most people played it through the telecom companies. So (a) lot of people brought the telecom companies and played the consumer theme.
Now people are looking at how to play it. Our view is that smaller companies offer better opportunities than bigger companies in terms of growth prospects as well as how they are valued.
The other space which people are looking at (is) the autos, but that has had a great run over the last one year. There are concerns about the excise duty increase in the budget. Hence, that is something which people are not at the moment adding more money to.
How do investors view the infrastructure sector today? Would you talk about some stocks that you think are still under-priced?
Infrastructure is one of the themes which investors are confident on. Over the next 10 years, we will see (a) lot of activity happening in infrastructure.
The worry which investors have is the implementation (which) has been much slower than what people thought initially... With a stable government in place, they are hoping that the implementation happens much faster...
What are investors expecting from the budget?
...most people recognize that the growth has been strong. Hence, you need to take back some of the fiscal stimulus... They are looking at one of the measures by which the government can now start controlling the fiscal deficit because last year (the) fiscal deficit was high and most people understood it. Now, people want some measures where there is control (on the deficit)...
The second would be what happens on the public sector disinvestment and that is one way that a fiscal deficit can really be controlled.
Third is in general what the government approach is to reforms, whether it’s the oil (price) decontrol where people are hoping something gets done there and some steps are taken. People are looking more at the reforms and how the government is going to approach the reforms in the next few years.