Balasubramaniam A, CIO, Birla Sun Life, speaks to Niren Shah on the future of the Indian market and the economy
How do you see the movements in interest rates, inflation and their impact on the overall GDP growth in the medium to long term?
Broadly, the Indian economy should perform in line with expectations that is, within the range of 8.75 per cent to 9 per cent. This can be achieved on the back of good monsoons and increased government disbursement in the second half of the financial year. Tax collections, till date, have been ahead of the budget target.
Also, there is a high probability that government borrowing will remain under control or could even reduce. Given that the current concerns are about subprime and its expectation on global economic outlook, there is a high probability of commodity price movements downward thereby reducing inflation in India. This essentially could bring down the interest rates in the second half of the financial year.
There is excess liquidity in the domestic markets. Plus, there has been a steep correction across indices and volatility in global markets. Are the current price-earnings (P/E) levels for the Sensex and sectors justified?
Which sectors look promising?
The BSE Sensex's earnings per share has grown at a compounded annual growth rate of 27 per cent in last four years. However, this growth rate is expected to slowdown to 17 per cent this year. But it is still pretty healthy for the current year as well as the next fiscal.
The Sensex's EPS for FY08 and FY09 is expected to be Rs 840 and Rs 980 respectively. So at current index level of 14,400, the P/E ratio works out be 17.1 and 14.7 for FY08 and FY09 respectively. We feel that there is a room for upside based on these valuations and we can expect a 15 per cent - 18 per cent upside from this level in one year. In my view, sectors like telecom, capital goods, engineering and banking should outperform, going forward.
Corporate earnings growth has been fairly good for the first quarter. Is there a possibility of a slowdown in earnings growth?
The earnings growth is expected to slowdown as expansion plans of various companies, both organic and inorganic mean higher interest cost and higher depreciation charges. Overall, earnings growth will be affected by slowdown in earnings growth of IT companies and non-ferrous companies.
The former would be adversely impacted because of the appreciating rupee and the latter, on the back of expected fall in prices of various metals.
