Sanjay Sinha, CEO, L&T Mutual Fund talks to Priya Kansara Pandya on markets.

Hi Sanjay and welcome.How do you see FY11 panning out for India Inc? How serious is the inflation factor for robust GDP growth estimated by various economic think tanks?
 
After a year of consolidation, we expect the earnings of corporate India to move into higher growth trajectory. With GDP growth forecast pegged at 8% plus for FY2011, 15%-18% top line growth for Corporate India looks likely along with 20%-22% earnings growth.
 
Inflation persisting above double digit mark for longer period would be a cause of concern. But we believe monetary authorities have taken cognizance of the same and have acted prudently.
 
Our economy has withstood the global financial crisis and is on the path of strong and sustained revival and hence, certain amount of inflation is bound to be inbuilt. We believe that though inflation is a threat to growth, it can be handled by correct monetary policy.
 
How much could the markets correct in the medium term? What will be the triggers?

In the previous bull run (2002-2007), we have seen markets correcting 10-15% intermittently and hence, similar levels of corrections cannot be ruled out. We believe that it would largely be global factors that would lead to sharp correction in markets and not so many local ones.
 
After Greece, Eurozone is likely to throw up new flashpoints. UK could be a potential threat. Impact of Chinese Yuan and Japanese Yen strengthening cannot be ruled out. Spike in Crude Oil prices due to trouble in the Gulf region could also play a major spoilsport.
 
How have you churned in terms of sectors in the last six months? Why?
 
In last six months we have reduced our allocations towards the FMCG and telecom sectors and have increased allocation towards capital goods, cement, metals and financials.
 
Over the last 6 months, we have also moved out from predominantly large cap stocks to mid cap stocks as valuations were more attractive and growth was stronger. The FMCG and telecom sectors are suffering from heightened levels of competition. We expect the Industrial capex cycle to revive in 2HFY2011 or early FY2012 and hence, we believe the stocks under the capital goods sector could do well over next couple of years.

Growing economy would continue to need higher financial commitments and with pick up in credit the financials’ sector should perform relatively better. With the increase in infrastructure spend and the improvement in real estate demand, cement sector should also do well
 
How do you think the robust FII flows can be sustained if global markets recover as money will flow out?
 
The recovery in global economy and markets in general would result in an increase in the risk appetite and hence increased flows towards high risk assets such as emerging markets, commodities, high yield bonds, real estate, etc.