7th April 2011

WF : Concerns are being voiced of late about a faltering India growth story - persisting inflation, high deficits, high commodity prices and slow infrastructure growth are cited as the key concerns. How serious are these concerns and what impact do you see them having on earnings ?

Satish : These concerns are warranted. Growth is indeed slowing down on account of delays in project approvals and lower capital expenditure. The slowdown is a blessing in disguise as a hypergrowth economy will also have high inflation. In our view the current slowdown will come to an end in the second half of FY12 which will help in earnings then. As regards the market, we think the markets will stabilize and not fall too much.

WF : Was the recent wave of FII selling more attributable to a lack of confidence in India or a greater comfort in the encouraging signs of growth in US ?

Satish : The term FII comprises of various classes of investors including pension funds, hedge-funds, macro funds and others. From our studies, we believe that longer term and stabler money is coming is coming into the market which is encouraging. Further, the impact of change in regulations in insurance and MFs is behind us and money is coming in. Consequently, money will be more stable in markets and we will be constructive in markets

WF : Are Indian valuations now in line with other emerging markets? Do you see Indian markets trading in 2011 at EM valuation levels, or at a premium or at a discount to the EM basket?

Satish : Valuations in the Indian market is divided into two extremes - high valuations, good governance companies and low valuation commodity stocks which on an aggregate is cheap. We think Indian markets over the medium term will trade at a premium to other financial markets on account of higher growth prospects. A sustained slowdown could impact valuations and push them to low levels, but this is not the base assumption

WF : The banking sector - which was the darling of the market in 2010 - has witnessed a very sharp sell-off on fears of margin erosion and weakening earnings. Is this a time to stay cautious on this sector or would you use this weakness to buy into the sector? What is your outlook on this sector over the next 12 months?

Satish : The banking sector has actually performed fairly well on account of prices moving close to all time highs. Rather than view it as a sector alone, we look at banks based on an individual basis of well run banks, the sectors they are present in, quality of assets and other perspectives before deciding on the stocks to purchase. The banking sector will remain a core sector in our portfolios, and we are optimistic on the future outlook of the industry

WF : What is your view on earnings growth for FY12? Are you looking at earnings downgrades in any particular sectors?

Satish : We are continuously looking at the earnings growth in FY12 and we believe that growth could be of the order of 16-18%. There is a risk of downgrades in the commodity segment and oil & gas stocks. Auto sector and a couple of sectors will be decidedly slower on account of base effect. Some of the smaller companies may be more vulnerable

WF : Growth in infrastructure has been much slower than expected. There are now concerns of further delays in big-bang project announcements due to the "scam-tainted" political atmosphere. What is your view on the infra sector? How will you be playing this theme in 2011?

Satish : The infra sector will remain core to the economy but from a share market perspective, they may continue to underperform. Looking at the medium-term, infra companies will need to improve capital efficiency before they can be rerated. In the earlier rally, infrastructure stocks went up on the back of growth but now investors want to look at the capital efficiency which is poor

WF : What in your prognosis for the Sensex for 2011? There are some who believe that the second half will be better than the first and that we are witnessing only a short term correction. Do you subscribe to this?

Satish : We have to bear in mind that many of the issues that India is facing is not structural and we can reverse the negative sentiment through a few radical steps. Hence, I subscribe to a positive outlook on the sensex of the order of 20000 - 22000 for end 2011. It could even overshoot towards the end of the year to 25,000

WF : Which are the themes you continue to remain optimistic about - despite this round of uncertainity?

Satish : We are maintaining a balanced approach and we are not overly pessimistic on markets. We have a mix of financials, commodity, utilities, and telecom sectors. We are also reviewing our positions on cement. Many companies are implementing large projects which will result in a significant increase in profits in a year or two which will result in markets looking reasonable then

WF : How are you asking your team to position their portfolios in this market environment?

Satish : We are not becoming too defensive due to the current slowdown and we think the market will gradually head up. We are increasing our exposure to growth stocks, and will increase them as our conviction increases. There are many unknown issues such as oil prices and political uncertainty, it may be that defensive sectors out-perform from time to time before the inflection point but that should not deter us from the longer term convictions