The Hindu Business Line : Handle volatile market with care

Economy outlook: A GDP of around 8 per cent is very positive and if we grow at just 7 per cent next year it would be extremely positive, and mean our services and manufacturing sectors have done extremely well. Agriculture, lagging behind till now, could be the surprise next year. A concern is that government expenditure on infrastructure is just not keeping pace with what has been promised or planned, and this could slow our progress substantially. Already some of our major metros — Bangalore and Mumbai — are bursting at the seams.

Equity outlook: The Sensex has appreciated by about 50 per cent from the 6,000 mark, to cross 9,000 during 2005. To expect the same to happen next year would be too much. I expect markets to continue to remain buoyant and appreciate to the magical 10,000 mark but with heightened volatility. The true test would be Q3 and Q4 results. What should an investor do in such volatility? Book profits as and when the opportunity arises.

FII Interest: More FIIs are being registered; their number has moved up from 600 to the 850 mark. Each new FII means a base investment of $ 50-100 million. The inflow will continue, as India is the hottest destination now. Valuation levels have appreciated much faster, but this is typical of a growing economy. The falling rupee in Q4 of 2005 was another big reason for huge FII inflows. If we continue to deliver 7-per cent plus GDP growth, inflows will happen.

Retail participation: The markets are at new highs and the sentiment or mood keeps on changing with the value of the indices on a daily or weekly basis. With such changes happening, retail participation will be there but investors will churn existing portfolios.

New money will come through mutual funds and the IPO route; attraction to equity and the desire to make quick money will help fresh inflows from the retail sector, but this would be a small percentage compared to FII flows.

Favoured Sectors: GDP growth will come from manufacturing and consumption of goods and services.

To fund the capital expenditure that is happening and the infrastructure that is required, you need banking. My top performing sectors are banking, infrastructure, retail and capital equipment manufacturers. Best picks: The markets will be extremely volatile and one has to play safe. Mid-cap and small-cap space has interesting stocks, but they require constant monitoring and churning, which small investors are unable to do. Hence I recommend only large-cap stocks — BHEL, SBI, ITC, Siemens and Tata Motors.

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