While the markets have cheered the recent policy initiatives and key economic developments, there has been a steady rise in the closure of equity fund folios in 2012.
In addition, he tells Puneet Wadhwa, a reduction in interest rates would give a boost to investment in equities. Edited excerpts:
How do you see the markets from here on? What would be the worst-case scenario if there are early elections?
Political uncertainty exists. However, recent moves by the European Central Bank and the US Fed have substantially reduced the risk premium for equity investors across the globe.
Thus, the liquidity generated by central banks in developed markets is likely to find shelter in emerging market (EM) equity.
Within emerging markets, India has an advantage over China, as the Chinese economy is slowing. Also, in India, the recent policy announcements have not been rolled back.
This, coupled with a strong pick-up in the monsoon in August and September, considerably reduced the downside risk to gross domestic product (GDP) growth rates.
Thus, political uncertainty alone would have a limited impact on equity markets, if global liquidity and growth scenarios remain at current levels.
Would the focus shift to developments at the domestic level, compared to what is happening globally?
It would be wrong to say domestic developments did not impact Indian equity markets earlier.
In fact, India's relative underperformance in calendar year (CY) 2011, compared to other EMs, was partly due to its domestic developments such as low investments and high fiscal and current account deficits.
The government's recent policy initiatives suggest policy is moving in the right direction. If we continue to take rational economic decisions and improve the share of investment in our GDP, our markets will be less impacted by global events.
What are your earnings estimates for India Inc for FY13 and FY14? Have the overall estimates and any sectors in particular seen an upward or downward revision?
We expect the Sensex EPS (earnings per share) to be Rs 1,210 for FY13 and Rs 1,385 for FY14, growth of about 14.5 per cent in FY14 over FY13.
The important thing is the pace of EPS downgrades, very high till March 2012, has significantly come off. Thus, the downgrade
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