Where do you see the market in 2009?
The environment is very, very tough. And, fundamentally speaking, it has gotten worse since the start of 2008. So in 2008 it was the financial markets which hit the real economy. In 2009, it will be the real economy hitting the financial markets. Last year, it all started off as a financial problem. And it had an effect on the real economy. Now the reverse will take place. If anyone seriously believes that recovery is imminent or is happening around the corner, it is more hopeful talk than anything backed by real numbers. The real numbers are going from bad to worse, globally. The outlook on markets is a different issue but fundamentally I don't see any turnaround in the near future. But the market is a different animal and can have a different trajectory. Which is why 2009 is trickier from the market perspective. It was easier to make the call in December 2007 to turn bearish on the market in 2008. It is much more difficult to say where 2009 is headed. 2008 was a one-way market, all the way down. 2009 will be a wilder one. The first year of a bull market is easy to predict. The second year is trickier. The same for a bear market. But overall, I am still very negative and I see no reason to change my view fundamentally. But markets can compel you to change your view from a purely trading perspective. So if market was to settle at 7,000-8,000, irrespective of your macro view, you can still be bullish on the market.
You think the market will reach to that level?
I think so. I don't think we are done with this bear market. The lows have not been securely put in place. We will hit some lows in 2009, but highs won't be there for a long, long time.
Negative IIPs is something we have not seen for the past 17 years. All these stimulus measures from the Indian context are not going to work. Freeing up credit is just part of the problem. The real problem is freeing up the equity market. And that cannot be done by government action. It will happen on its own. Unless a company gets equity first, debt is of no use. Debt is given only if the company has equity. The problem is not so much credit but rather that there is not sufficient equity in the system. What will solve that problem is a good bull market which does not seem imminent.
Do you see FII money coming in?
Sporadically FII money may come in but on a sustained basis, it does not look like it, just yet. But such things can change quite quickly. But mere FII money coming in will not make the liquidity market go up. What will make the market go up is some visibility on the fundamentals changing for the better. Currently, we have not yet hit rock bottom. Company numbers have still been ok since the last quarter. It's from this quarter onwards that the real problem will emerge. This quarter will be an absolute write-off. It's going to be a disastrous quarter for all companies. I see FY10 earnings being worse than FY09 earnings. But remember all these are fundamentals, the market might turnaround, that is a different call. I am not saying that because of the poor fundamentals the market will not rally.
Is there any sector which will pull the market down this year?
I think infrastructure will. I don't like infrastructure as a business because it's a commodity led business run on the basis of competitive bids. That means the margins are very low because the lowest bidder wins. So it's great headline news to win a project or order, but whether it's economically viable is another issue. That we get to know only when the earnings picture comes out.
Any contrarian bets?
We like HPCL and BPCL. We have liked them over the past 5-6 months mainly because of our view on oil being negative. So we have a situation where they have to be bought because they will benefit.
Do you think the 8 per cent growth is sustainable?
No. India needs a lot of investment to grow. It is an underinvested economy. Investment without foreign capital does not happen. So till we have a revival of foreign capital to India, in any significant manner, I doubt India can grow at that pace.
How bad will be the Satyam impact on the market?
Satyam's impact will be serious and far reaching. For a while to come, all high flying mid caps will go off investor radars, and there will be extreme risk aversion, and investors will focus only on the large cap segment. Again, this phenomenon will not be good news for the broad market.