Market Voice: Aneesh Srivastava, CIO, IDBI Federal Life Insurance

`India not expensive at current levels`

Aneesh Srivastava, chief investment officer, IDBI Federal Life Insurance, tells Krishna Merchant that Indian markets are expected to scale fresh highs in the year 2011. Edited excerpts:

What are you expecting from the mid-term policy review on Thursday?
I think the Reserve Bank of India (RBI) will keep rates unchanged in the upcoming policy review. Given the liquidity crunch, the market is anticipating a possible cut in the cash reserve ratio (CRR).

The markets have corrected over six per cent in the past few weeks. What is your outlook on valuations?
The near-term volatility will always be there. But, if you look at the 20 per cent earnings growth, India is currently trading at 15.8 times 2011-12 forward PE (price to earnings multiple), which is reasonable. I think India is not expensive at current levels.

If markets correct, there would be reasonable amount of buying interest from domestic and foreign institutional investors.

Do you expect markets to scale fresh highs in 2011?
Yes, I believe so. In the current environment, where the US is infusing liquidity into the system and Japanese liquidity is strong, we expect the Indian markets to trade at 18 times 2011-12 forward PE, which translates to 23,000 on the Sensex. Hence, there is a possibility that market will cross its previous high.

What are your expectations from foreign institutional investors in 2011?
The structural allocation, which favours emerging and high growth markets, will continue because of the high differential growth rate between developed world and emerging markets. India will be a beneficiary of that.

Consumption and infrastructure will be dominant themes. The consumption theme can be played through education or banking.

Also, since infrastructure has not done well, it does not mean everything is bad there. There has been a delay in order inflows, but they are expected to pick up.

We are also optimistic on the oil and gas sector, if the government continues with the reform process.