Market Voice: Rashesh Shah, Chairman, Edelweiss Group

'Midcap stocks face price manipulation risk'

Rashesh Shah, chairman, Edelweiss Group, tells Krishna Merchant that despite good returns on back of high growth, investors should be cautious of midcap companies. Edited excerpts:

The markets were volatile over the past week. What is the road ahead?
I expect the markets to remain subdued for the next five-six months due to high interest rate and low liquidity in India.

Even globally, there was a lot of euphoria and pre-position build-up before the announcement of quantitative easing (QE2), on anticipation of emerging markets doing well. But QE2 came as an anti-climax in the markets.

Given these uncertainties, the first half next year will be subdued. Liquidity squeeze, high inflation and interest rates are concerns for the Indian markets.

There are huge expectations on QE2. I expect real effect of QE2 to come into play by April-June next year.

The second half will be good for the markets. The current correction is healthy and valuations of companies are becoming realistic.

Many midcap companies have taken a beating on the margin-selling and price rigging news. Should retail investors stay away from the broader markets?
Investors should study the midcap companies well, and invest in those with a good track record and management.

Midcap stocks gave good returns on back of high growth, but these face the risk of price manipulation. Hence, investors should be cautious. If investors cannot study these, they should invest via mutual funds.

Foreign institutional investors (FIIs) heavily invested in auto and banking this year. What will be the investment trend going forward?
I believe consumption is still dominant. FIIs did not invest aggressively in infrastructure.

FIIs invested in savings via financial services, mainly banks. They also invested in consumption — auto, retail and fast moving consumer goods, while re-focusing on pharma sector after a long time.