Oil or metal: What will you bet on?

Gul Teckchandani believes the markets have strong fundamentals, which may not show up each day, but will play out over the medium to longer-term.

He further says it is very difficult to predict commodities and one has to remain invested in these for long; effectively with a three- to five-year perspective.

Giving his preferences, he says, "I would look at oil companies at this point in time rather than looking for these metal companies, which have had a fairly decent run."

Excerpts from CNBC-TV18's exclusive interview with Gul Teckchandani:

This 12,000 has become quite an important resistance level. Would you say valuations are too stretched and would you advise people to wait and hold on, do you see a fairly deep correction at this point?

No, I would not say anything of that sort. Valuations, as we all know, have been rich. But the fact is that if one looks at 07 and 08, I think the Indian economic environment looks as if it is going to hold out for the next eighteen-twenty four months in an aggressive kind of growth mode.

So logically, the stock price would look reasonable, when you look at it from that perspective. Having said that, if one is going to just run through the B-group, one will see enough value there, but one will have to stick in and see this volatility from a sentimental perspective.

Most people keep saying that 12,000 is important and that people should take some money off the table and book profits and all those kind of things. So necessarily, when it approaches that level and should there be a correction, then everybody will try to run out from the same door, particularly the traders.

So you have a whipsaw, but this is good from a longer-term perspective because the market is consolidating at the level, which is pretty high and pretty decent after all that we saw in May.

You are speaking of a fairly robust growth over the next twenty-four months and looking at most of the trends in both corporate earnings as well as macro indicators that seems likely. What kind of highs will you give the markets going by the fundamentals?

I would not be surprised, if we even see an Index of 15,000 over the next twelve months or even earlier, because one should not forget that the money flows, which had dried up have started coming back.

The Indian business environment is pretty robust and prices are not dipping the way we had seen in terms of either

the commodities or elsewhere. Interest rates halt has also taken place all over the world and oil has been coming down.

All these are fundamentally strong factors. But will they show up each day? No, definitely not. But will they play out over a medium to longer-term? Yes, most definitely.

So you are expecting that the US slowdown and the other factors that have taken off money from commodities and several other developed markets, are likely to come into India? Would we be winners of this liquidity outflow from other asset classes?

It is all too well known and I think people are expecting a soft landing. People are not expecting the Fed to increase rates and they don't expect the inflationary pressures to take over. You saw Bank of Japan not increasing rates and I would expect Europe to do the same.

So looking at the overall macro picture from a global perspective, things look, I would not say buoyant, but at least they are not negative. And if oil plays out the way we expect it to, as most people are saying that oil will come down before it goes up, I think you are sitting on a situation, where possibly corporate profitability can only be better going forward.

This quarter, I think we will be again surprised if direct tax collections and indirect tax collections are robust. All this tells you that corporates are doing pretty well.

You have seen sectors such as metals, when they have fallen, they fell harder than the rest. You also have autos, which were pretty much instrumental in getting these shares up to where they are. Have you seen a rally in that, now that we are sitting close to 12,000? We are seeing some sort of apprehension, do you think the kind of movement that we are seeing in these sectors will continue or will there be a slight shift going forward?

I think commodities are very difficult to predict and one has to be in there for long and effectively think of it from a three-five year perspective. But it is very difficult to predict commodities and personally, I would look at oil companies at this point in time rather than look for these metal companies, which have had a fairly decent run or for that matter, sugar.

If one goes for individual companies and looks at the valuations there are enough opportunities in both the second-line and the B-group companies.

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