Market voice: Vivek Mahajan

'Telecom can spring a surprise'

Driven by a low base, Aditya Birla Money Research Head Vivek Mahajan tells Puneet Wadhwa India Inc will see high growth in the first quarter of 2010-11. Edited excerpts:

What is your opinion of the performance of India Inc in the first quarter (April-June) this year?
Sensex companies are expected to show 20-22 per cent growth in the bottom line. The rate of growth, however, is expected to be lower than the previous quarter (January-March), which saw high growth driven by low base. Results in the current quarter are likely to be impacted by a possible decline in profitability of telecom, oil & gas and cement sector.

Telecom has the potential to spring a positive surprise. The slip in margins as anticipated by the market could actually stall or be very marginal.

What is your investment strategy at current levels?
We expect corporate earnings to gather pace, based on the ensuing capex in the 11th Five-Year Plan (FY07-12). The structural changes taking place in the country, in terms of physical infrastructure, have already laid the foundation for sustainable growth of above eight per cent over the next few years.

Private investments in power generation and hydrocarbons would change the competitive landscape of India Inc as a whole. Reforms seem to be gathering momentum.

We advise investors to stay invested. Any correction should be used as an opportunity to accumulate.

How do you view the changes in the interest rate scenario and the banking system, especially introduction of the base rate system?
The implementation of the base rate regime is likely to bring transparency into lending rates. It will help in a swift transmission of monetary policy action into lending rates, which was not there under the benchmark prime lending rate system.

As lending below base rate is not possible under the new structure, corporates are likely to incline towards short-term money market instruments to raise their working capital demands. As a result, short-term money market instruments, like commercial papers market, will become more active.