Atul Mehra, ED & Head-Capital Markets of JM Financial said that they are bullish on power, power transmission and distribution, capital goods, construction, alternate fuel and iron.
According to him, the concerns on crude and interest rates remain. The Fed cut by 25 bps could see cheer in the equity markets, stated Mehra. There are enough non-US funds moving around in markets to absorb shocks.
Excerpts from CNBC-TV18�s exclusive interview Atul Mehra:
Q: We are within striking distance of an all-time high, could we go much higher from here, if so how much?
A: Well we have not seen highs being created; we are going to see newer highs being created. My personal guess is you will see the index somewhere in the region of 17,500 closer to Diwali time. The fundamental reason that gives me motivation to believe that is going to be achieved is liquidity. The same old argument that we have been using for three years still continue to hold true.
Q: Fundamentally, there is a wee bit of a crack coming on the windscreen. You have this IIP number, which is not looking too good. Globally you could see a slowdown because credit is tight. So, would you say that this liquidity argument could get punctured?
A: If you want to add a slight bit of crack, add two more cracks to that. One is the oil price trading at USD 80 a barrel and interest rate, which still continues to trade in the vicinity of 10.5% to 11.5%, which is still high. These are what I call cracks, which are there. The question out over there is all these have been factored into our system, markets are taking note of it and right now corporate India may have given us enough confidence and made us believe that despite all these cracks and uncertainties their numbers will be very much on track and their growth will not be hampered in quarters and years to come ahead.
Q: You are looking at 17,000 by Diwali and perhaps a continued high, where should investors be putting their money sector-wise?
A: Let me give you five or six sectors that I am personally very excited about. Slot numbers one, two and three have been taken up by power sectors. We are very bullish on power, power transmission, and power distribution. So, all the three sectors in one bucket is the most exciting sector. We are bullish on the construction sector; we are bullish on capital goods as a sector. The two other sectors that are our favourites would be the opportunistic sectors and one of them would be the alternate fuel sector. This is a very interesting sector and I am pretty much excited about this sector.
The second sector, which is again very interesting, would be the resources sector, which is what I call as the metal resources sector, basically back into the iron ore or manganese ore, those kinds of companies. This is a very interesting sector and I would urge investors to look into that.
Q: Since you touched on liquidity, there are two important aspects. One is, what would the Fed do on September 18 and its impact? Is there any more seriousness to the subprime effect?
A: I would say that it is a very well kept secret that the Fed is meeting on September 18. Almost the entire world has given advice on what the Fed should be doing and the unanimous opinion is that the Fed should decrease the rates by another 25 basis points. I think that is pretty much given. If that happens, people would say all is fine and you would see some more euphoria continue in the market.
As long as we do not come across a subprime losses number, which is staggeringly above the number that people have factored into their assumptions, I think we will continue to do very well. Unless somebody tells us that the number is awfully different or the number is totally gigantically different, you would see the marketing taking a cue from that.
Q: If it is gigantically different, if there is a recession, if the flow of money from the US definitely stops or flows out, do you think the downside is very bad or do you think the downside is protected, because there is this middle eastern money that seems to be still coming?
A: Let us assume a hypothetical situation where all that we just discussed is true. I would say that there are enough shock absorbers that have been factored into it and one shock absorber is Middle Eastern money, and the second shock absorber is the domestic mutual fund money. Look at the amount of money that these mutual funds have gathered as a corpus, and what they invested in; in the last month or so, it is a pretty exciting number. What gives me terrific confidence is that the retail or wealthy individuals are putting every dime of their money into the market and that is a very encouraging sign.
