Market voice: Motilal Oswal, MOFSL

'Look at broad trends rather than periodic moves'

As India is poised to become a $5-trillion economy in the next decade, Motilal Oswal, Chairman and Managing Director, MOFSL, believes good economic performance will ensure that it will outperform other markets even in the event of a US recovery. However, given the inflationary concerns, more liquidity tightening measures are likely in the short term, he tells Krishna Merchant. Edited excerpts:

Do you feel the market has bottomed out or do you expect the slide to continue?
I do not know if it is the bottom, but I am very confident that corporate performance is good. Micro-economic factors are very strong except that the interest rate, which is linked to inflation, is worrisome.

The market is getting impacted as foreign institutional investors’ (FII) inflows have become negative in this calendar year. I do not know if FIIs will be buyers or sellers, but I can see that the lead indicator is economic performance.

We, as a country, are doing fine and there may be liquidity tightening measures that we will see in the short term. The major concern is inflation and the various scams which have dampened the markets.

Are you expecting a pre-Budget rally?
There may be a pre-Budget rally if somewhere we get the indication that a JPC (Joint Parliamentary Committee) is being formed. I think the government has no option but to accept the demand from the opposition for a JPC. Once the JPC is done, we expect a good Budget session.

What will be the other triggers for a pre-Budget rally?
The trigger can be inflation going down, which I think will happen. The second thing is corporate performance and the economic factors are good. Hence, FII buying could emerge, which would be a short-term trigger for the market.

Which sectors do you feel will benefit from the upcoming Budget?
I would go for fundamental sectors such as automobile, banking, metals and pharmaceuticals. I do not know about the Budget, but these are the sectors that are fundamentally doing very well.

There is heavy speculation by FIIs in index options, which has caused a threefold spike in volume in last one year. Is that a concern?
The FIIs (Foreign Institutional Investors) do not speculate. They do a lot of hedging through options, futures and various instruments. What I am worried is that retail investors are becoming very speculative because the total delivery in the market is only 4 per cent of the total turnover, including for FIIs.

If you look at just the retail delivery of the total turnover, it is only 1.5-2 per cent. Hence, a lot of speculation is happening due to volatility on the global and Indian front and the government is fighting its own battle. The delivery percentage of the volume needs to go up.

In 2009-10, there was decoupling as Indian markets performed and the West did not give much returns. Do you see a reverse of that happening in 2011?
I am not really agreeing to the decoupling theory. The US may perform but India will perform better than any other market.

If you look at the last decade, the index has given 18 per cent CAGR (compounded annual growth rate) returns, and the market capitalisation has risen 14 times.

In the next decade, we will become a $5-trillion economy from $1.3 trillion. With a 35-36 per cent savings rate, a huge amount of money is being generated. We must look at broader trends rather monthly, quarterly or yearly moves.

The infra sector has been a major underperformer. Do you see infrastructure performing better in 2011?
There is a difference between market performers and business performers. Unfortunately, there is a slowdown in infrastructure investment.

I think infrastructure as a theme from the business perspective will be much bigger. The dynamics of the business are very different. There is competition, long capital cycle, the recoveries, uncertainties on input prices, etc. The businesses do become big, but very few companies will be able to bring profitability to the sector.