Manish Sonthalia, VP and Fund Manager, Motilal Oswal AMC spoke to Jinsy Mathew on the market

Do you think the rally seen in the markets since the start of 2012 is sustainable?

The rally seen in the markets is sustainable as long the Indian currency appreciates against the US Dollar. According to me, the Rupee looks stable as of now, and so the markets should sustain the up move at least till the Union Budget in March. Also, the Dollar movement largely depends on the Euro scenario. So, the uncertainties in the Eurozone can lead to some volatility in the markets.

On the other hand, if the Budget turns out to be a non event, then India will get de-rated, which will see lead the markets to correct significantly.

What is your sense about the American markets?

The American markets look stable at this point in time given the encouraging data that has come in the past few weeks. But what is more important is how the second half of the financial year pans out. The GDP growth still remains a challenge, so we have to wait and watch if a QE3 is coming. If it does, it would be positive for risk assets viz emerging markets and currencies

And Europe…..

Europe is going through a chronic problem and so an overnight change in the situation is unexpected. There will be bouts of bad news in-between which will make the markets volatile. But overall, I don’t think the markets will react drastically as it a known unknown which is always less painful than an unknown.

Broader markets have shaped up very well. Do you expect this to continue?

The surge in the broader markets was expected but the only question was as to when it will happen. The valuation gap was huge between large caps and midcaps. Also, with the interest rates at such high levels, small business got affected drastically. Now that the liquidity strain is easing and the interest rates are expected to peak out in the coming months, midcaps and smallcaps are going to be in the limelight.

It seems the retail investors are out of the market and only the foreign institutional investors (FIIs) are in. Do you agree?

When the market rallies, retail investors are always the last to enter and it’s no different this time around. It’s only during the heightened activity retail investors get attracted to the markets.

How do you see India against other Emerging markets?

On valuation terms, India continues to remain expensive as compared to other Asian markets as has always been the case. However, if fiscal consolidation doesn’t take place, or at least the road map towards fiscal consolidation is not laid down in the upcoming Budget, then India will underperform significantly just like the way it is outperforming significantly currently.

Which are sectors you are comfortable investing at the current levels?

Rate sensitive pockets are the place to be in the current year. With the RBI poised to cut rates in April or earlier, rate sensitives are set to surge.

Should one enter the markets at current levels?

I would say No as the markets have run up significantly. It would be wise to stay put away from the markets if you have not invested till now. Wait for the Budget as one would get a sense of direction from it. Also, there can be some correction expected around that time, which will be a good buying opportunity for those who missed in the December lows last year.