Foreign institutional investors' attention on India has wavered a bit over the last 3-4 months, and they are eyeing investments in other emerging markets like China, feels Manishi Raychaudhuri, Managing Director and Asian Equity Strategist, BNP Paribas India.
In an interview with CNBC-TV18's Latha Venkatesh and Sonia Shenoy, he says it is not difficult to find stocks available at attractive valuations despite the recent market rally.
He says oil marketing companies continue to look attractive and sees a high possibility of diesel prices being deregulated. He is also bullish on banking, autos, engineering and export-driven companies.
Below is a verbatim transcript of the interview
Latha: What is the sense you are getting, as the markets touch all time highs are you worried about valuations at this point?
A: There are certain stocks, there are certain sectors, which are clearly close to their highs. I would think that investors at this point of time should be discerning about, which stocks and which sectors they should invest in; we are seeing that among the FII investors as well.
For example, I don't think Indian inflows have suffered on an absolute basis but they have suffered on a relative basis. If you look at the first half of 2014 and even the last couple of months of 2013, India was getting almost about 60 percent of the total FII flows into Asia. However, if you look at last three to four months it has got somewhere around 30 percent.
Some of the so-called competing markets in the emerging market universe like China and Korea, they have also got very strong inflows which indicates that the FII attention is possibly getting diverted away from India slightly. It is not yet a major concern because we have not yet seen FII selling. The only thing that it indicates is that the FIIs are looking for alternative investment avenues in terms of geographies within Asia and emerging markets.
Sonia: One of the sectors that have stood out in terms of outperformance has been the entire oil and gas space. Now that we have diesel underrecoveries which are completely negligible at this point in time and we have Brent which is also at USD 100 per barrel are you optimistic on further gains for the oil and gas space and your stance on the sector as a whole?
A: With this rather unexpected decline and moderation in oil prices I think certain stocks, let us say the oil marketing and refining stocks, they still do look attractive selectively even though they have done phenomenally well. However, as you rightly pointed out underrecoveries are close to zero and as a consequence there is a real possibility of diesel deregulation going forward.
It would mean that after petrol even the recurring subsidies on diesel would be zero. So, there is a great deal of uncertainty about the refining and marketing companies that would be taken away. Even the coking fuel subsidies are declining almost everyday. So, I think the refining and marketing companies particularly those which are also creating alternative businesses for themselves, they do look attractive.
As far as the exploration companies are concerned, it is kind of a mixed bag. For them the subsidies do tend go down but after a certain stage, the revenues that they get purely out of oil exploration that tends to decline. So, the exploration companies are a bit of a question mark at this point but the refining and marketing still looks okay.
Latha: We have got a lot of people speaking about 9000 in March and earlier today we got a target of 10000 by December 2015. These are tall targets of course but March is not all that far away. Six months 9000 you think is doable?
A: When we talk about 9000 on the Nifty we are essentially talking about somewhere close to 30000 on the Sensex. If you look at purely at valuations, currently the market is trading somewhere around 16 times one year forward PE. If we do have Sensex at somewhere around 30000, that is approximately 10 percent higher, it would be about 17.5-17.8 somewhere in that range which would mean that it is almost close to one standard deviation higher.
In a nutshell what I am trying to say is that if we see Sensex at 30000 or Nifty at 9000 six months down the line then I would not be concerned about valuations. However, if we see it today, maybe over next one month or one and a half months then there would clearly be a valuation concern at those levels.
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