Moses Harding, Executive Vice President & Head – Global Markets Group, IndusInd Bank, spoke to Puneet Wadhwa on the markets.

 
What is your view of the current market? What are the key triggers for the market to breakout on either side?
 
The market has tested the levels seen in February 2008, the start of the reversal cycle triggered by the U.S. financial crisis. The sustainability of up move from here is dependent on confirmation of economic turnaround in western economies; India shifting gear for GDP growth above 9% and more than adequate system liquidity.
 
In my view, the market has over-reacted to the reasonably good U.S. economic data of 3 September. The expectation build-up for better economic performance in the western economies has improved and any disappointment on this will trigger a significant reversal from these high levels.
 
We would see a bit of volatility going forward. But, it is prudent to book profit at current levels and stay aside till we get better clarity. There are no strong factors to chase gains beyond 18,650 on the Sensex and 5,600 on the Nifty.
 
How was the Q1 results season in your opinion? What is the outlook for the remaining part of FY11?
 
I am not too bullish on strong corporate results. The higher borrowing cost will definitely squeeze the margin.
 
Monetary authorities too have higher priority for inflation control rather than promote growth momentum; demand for India’s good and services from external sector is low; import input cost is on the rise.
 
Taking all these together and despite 8 - 8.5% domestic growth momentum, there is no case for expectation of strong corporate results in FY11.
 
Do you expect out-performance from any sector in the quarters ahead?
 
Yes, some factors who are direct beneficiaries should outperform. Given the thrust in the infrastructure and agriculture sectors, companies related to these sectors can consolidate their positions. The banking and finance sector is expected to do well.
 
What is the ideal strategy for a retail investor in current market conditions?
 
When the going is tough and the way forward is uncertain, it is prudent to adopt low risk – low reward investment strategy. This is what I would advise the retail investor.
 
They can afford to wait till the economic turnaround in external sector is sighted. Till then, it is better to stay invested in fixed income assets which are giving a decent yield with near zero risk.
 
Which stocks and sectors are you betting on?
 
The market right now is good for fleet-footed short term traders. I will not get into any directional bias and instead prefer to play set ranges with stop/reverse strategy on range break-out. Given this strategy, it is prudent to either play the index or stick to stocks with high liquidity to facilitate quick entry and exit.
 
Given the state of world economies, especially the US and Europe, what are the chances of a double dip recession?
 
We cannot really rule out double-dip recession. The confidence level of economic reversal in the external sector is low.
 
As of now, huge government spends and stimulus support has prevented the collapse. The consumer demand from private consumption is low and it would take a long time to pick up.
 
While ruling out a quick turnaround in the short term, I may not rule out a build-up of moving into double-dip recession. The consumption level in the western economies has indeed gone down significantly and it is visible to the naked eye.
 
Would the slow US recovery impact emerging market growth?
 
The conditions in US and Europe have diverted liquidity to emerging economy and markets. While this would help to consolidate the growth momentum at current level, the bias will be downwards and not upwards.
 
The risk is also on pull-out of these monies when a turnaround is sighted in the western economies and resultant uptrend on interest rates. A direct answer to this question will be affirmative.