Anand Shah, head of equities at Canara Robeco Mutual Fund, believes it’s not the

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right time to buy Indian stocks aggressively. In an interview with Mehul Shah, he said the volatility in the market calls for one to be cautious. Excerpts:

After a sharp rebound since March 9, the market is witnessing bouts of volatility in recent times. What’s the main concern?

Since the start of the calendar year, central bankers and governments globally have put in a huge amount of money in the system to bail out the financial sector and provide support to the world economy. The result of this was expansionary monetary policy and huge fiscal deficits. However, these actions also led to excess liquidity in markets and a rebound in corporate performance. Emerging markets were the primary beneficiaries of the same, and they rallied across the board. The Indian equity market was no exception.

Apart from this, the Indian market also benefited from election results, which brought in a stable and progressive government at the centre. As a result of all this, the Indian market has been one of the best performing among all emerging markets this year.

However at this juncture, we believe the Indian market has moved up too high, too soon, and valuations look stretched at these levels. With indications of liquidity reversals and withdrawal of stimulus, money will be more expensive in the days ahead, and it will increasingly become difficult to keep pumping money into the emerging market. At 17,000, the Sensex is trading at about 17-19 times FY10 earnings and 15-17 times FY11 earnings, which is on the higher side in the present global environment.

What is your view on valuations in the large-cap as well as mid-cap universe?

The market has rallied steeply and both large-cap and mid-cap stocks

have appreciated significantly. Large-cap funds have delivered more than 100 per cent return in the past 6-7 months and mid-cap funds have done better than that. However, one will have to be cautious to pick stocks in the mid-cap universe, even though the segment as a whole is rallying in tandem with the large-caps.

The long-term growth story of our economy is intact and we remain convinced that India is best poised to emerge as one of the most resilient economies and will be looked upon as one of the fastest growing economies by global investors. But this is not the right time to be aggressively buying Indian equities. Retail investors should look at systematic investment plans (SIPs) to invest gradually into the long-term India growth story.

Which are the sectors that look attractive in the medium term? Why?



We are bullish on Indian consumer. We believe with rising earning members per family and lower dependency, the Indian household will continue to grow its per capita income in the medium to long term, and drive the domestic consumption story. We believe in the strength and capacity of the Indian consumer, who will in turn help the companies from sectors such as banking and financial services, pharma, media and entertainment, power, FMCG and telecom. Investors should choose sectors that are immune to the global slowdown and are dependent on domestic growth and consumption.

What are your observations about the July-September quarter results?

India Inc has benefited from the liberal fiscal and monetary policies and from robust domestic demand in terms of sales growth. Also, profit margins of companies were higher due to soft commodity prices and low interest rates. The key beneficiary being the auto industry, as almost all companies in this sector made record high margins in this quarter. Companies in pharmaceuticals, banking and cement sectors too delivered decent year-on-year (YoY) profit growth.

Which are the sectors that look more vulnerable in case there is a deep correction in the market? Why?

We are extremely cautious on sectors that are dependent on, and hence

correlated to, the recovery of the US economy. We are cautions on metal companies as well as oil-producing companies. Also, we will be wary of investing in highly leveraged companies, which have high debt-equity ratio.

Mutual funds were aggressive sellers in October. What was the reason?

Last year, when foreign institutional investors (FIIs) were sellers in the market to the tune of approximately $13 billion, it was domestic institutional investors who were the net buyers. However, today when the market is up almost 100 per cent from its bottom, FIIs that are flush with liquidity are buying aggressively, and we are seeing some profit booking by domestic institutional investors, including mutual funds.

Which are your major investment themes in the present environment?

The present volatility in the market calls for one to be cautious, and not speculative. We strongly believe the Indian economy continues to have a sound growth trajectory and it will emerge strongest on the other side of the global recovery. We remain convinced about the domestic consumer-driven sectors and are staying wary of those that are closely linked to the global economic recovery.