Ramesh Damani, stock broker, Bombay Stock Exchange, is known for prudent stock-picking. Though he prefers to be cautious while talking on individual stocks due to regulatory issues, in an interview with Business Standard, he drops a few hints about the current rally and the sectors he is betting on. Excerpts:
The markets are moving up sharply. How long can the rally continue? What are the key concerns?
The Sensex seems set to challenge the old high of 21,000 in the near future. We are just five-seven per cent away from the mark. I think it is going to happen around Diwali or Christmas.
The market undertone is good. The stocks are not very cheap, but that is the nature of the market.
If one has not invested for over a year, when the index was in a range, there is no point waiting for a correction now. Merely in three days last week, we saw over a billion dollar foreign inflows. Even if we grow at eight per cent, little can go wrong.
But 21,000 is a huge psychological level.
The index may face resistance there. We will test it, tease it, but surpassing it decisively will be unlikely for a while.
The concern is that many initial public offers will suck money from the secondary market, which may drag the rally. Otherwise, India has de-coupled from the world markets and is beating its own drum.
Can the Coal India IPO, the country's biggest, hamper the rally, like Reliance Power did in 2008?
Coal India alone cannot create problems. It is a gigantic enterprise and the IPO will be well received if priced well.
Coal is a precious commodity globally and the IPO will generate interest. There will be some post-listing gains too.
But I hope the offer has some money for retail investors; 5-10 per cent will be reasonable. If retail investors make money in the IPO, they will buy most of the following issues.
The real concern will emerge six months down the lane, when there will be a flood of IPOs and the public sector dilution programme is in full gear.
It will tend to put the markets on the higher bottom mark, which means we won't be able to cross a certain level.
The markets are hungry for quality issues and Coal India is the only big one from the government stable.
In the current situation, is there substance in talks of a douple-dip recession?
Recovery in the US is weak.
But the Dow is showing a different kind of strength and seems to have priced in a recovery.
Also, Warran Buffet has said he doesn't expect a double-dip in the US. He watches multitude of companies through Berkshire Hathaway and they are all hiring and doing better.
This indicates the US stimulus programme is working. Though this may not be visible in the recent economic data, it will be in the next few quarters. The overseas financial crisis may create some problem.
If you look at the last 10 years, S&P has given zero per cent return. However, the Sensex has risen six times from 3,000 to 19,000.
Even in the bear market cycle, we moved from 8,000 to 19,000. So, we have decoupled from the US.
In fact, the entire Asian region is doing well, except China. Chinese are serial diluters. Their primary markets are flooded with papers, sucking out money from the secondary markets.
This is why China's equity benchmark is not hitting new highs even while its economic numbers are good.
The Tata group companies, normally slow-moving, are outperforming, while Reliance stocks are lagging. What is you view?
All stocks go through certain phases. Reliance was the show-stealer in the the first leg of the bull market. It may be consolidating now, but may bounce back to provide more impetus. In 2007, prices of some Tata group stocks looked like castles in air.
However, now that earnings growth is showing, no one is seriously worried about valuations.Domestic consumption is a huge theme for the markets and is powering the rally. Fund managers are also favouring populous countries with large consumer bases.
What are your top picks?
A lot of stocks will do well in a bull market, but the key is to find cheap ones. I like airline and hardware sectors, apart from the consumption theme. Airlines have cut capacity, raised fares and oil prices are stable.
Some of these stocks will show a good run-up. The other theme is hardware. Software has been talked about, but hardware stocks are enjoying new-found attention.
Considering there will be significant broadband, 3G technology and Wi-fi rollouts in the coming years, a lot of hardware systems will be required.
Will physical settlement in derivatives bring fundamental changes?
On derivatives expiry, there is huge volatility and unnecessary spikes, as people try to get the best price or the cutoff rate. Physical settlement will remove this extreme volatility.
In my view, it will improve volumes on BSE and kick-start the much-needed derivatives programme. It will be a noteworthy feature and will be welcomed by most members.