KK Mital, MD, Globe Capital, spoke to Jinsy Mathew on the markets and his expectation from the December quarter results of India Inc.
 
How do you see the Indian equity markets panning out in 2012?
 
The first half of 2012 appears a bit weak as the current concerns will continue to play out. However, the situation is set to improve in the second half. With interest rate cuts, a possible reduction in the cash reserve ratio (CRR) and inflation down to the expected levels of 7%, a change in market sentiment is inevitable.
 
The Reserve Bank of India (RBI), in its latest review, has clearly indicated that growth is a concern and needs to be looked into. Hence, the shift now is towards growth which is going to be a encouraging for the markets.
 
The projections, be it market or economy related have all been negative. Do you think we are being over pessimistic?
 
To a certain extent, yes. We have been talking of an array of negatives these days with concerns related to Government decisions, spending or infrastructure in general. However, this pessimism may not last very long.
 
We should remember that we are entering into the 12th five year plan period where we have set ambitious targets for augmenting infrastructure i.e. ports, railways, roads, airports and power etc. The long pending economic reforms are getting government‘s attention now and it will act to remove bottlenecks.  In other words, we can expect some acceleration in GDP.
 
What are your expectations from the December quarter earnings season?
 
This quarter is bound to see stress in the earnings as compared to the last two quarters. Rupee depreciation provisioning, demand slowdown and bunching of other events is going to impact corporate profitability. We expect that headwinds will ease out going ahead.
 
How do you view the developments in the telecom space?
 
Telecom space is seeing some policy intervention, which is breeding uncertainty in the sector.  Investors are skeptical as there is no clarity on many of the issues plaguing this space. Also, there is a slowdown in incremental demand. Unless the concerns regarding 3G and other issues are resolved, we remain neutral on this space.
 
Which are the themes to look out for in 2012?
 
Information technology (IT) space, according to me, will continue to perform as US, which is one of the major source of income, is showing signs of stabilisation. Also, defensives like FMCG will be good picks in volatile market. 
 
However, the interest rates are expecting to soften that would impart a momentum to economy and the market in general. Interest rate sensitive, cyclical and economy related counters would be in demand.
 
 Would you advice investors to consider debt over equity in these volatile times?
 
Even as the returns from the mutual fund schemes (debt) are much better than the equities in these times, one has to remember that equity is an important component in investments. One can always invest in a staggered manner in equities to take advantage of the current down trend. One can find stocks at reasonable valuations when the markets are down.
 
Do you think rupee can depreciate to 60 against the dollar, as predicted by many market participants?
 
The steps taken by the RBI in the past few weeks has restricted the free fall in Rupee. The Government is  also  concerned about the situation. One can expect the RBI to check any wayward movement in the currency. I think 55-56 is the maximum downside I expect.