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Sensex @17K: Markets to consolidate
September, 30th 2009

Nirmal Jain, CMD , India Infoline feels that the valuations are no longer cheap but are not prohibitively expensive either. He feels there still is investment opportunity available in select sectors and stocks. Here is his take on Sensex reaching the 17 K level:

17000 on the index, the general sense on the street is India is no longer a cheap market, to your mind are you a bit surprised with the strength we have exhibited off late?

I am not surprised at 17000, I mean this is just other milestone that the Sensex has crossed today, but, undertone has been bullish for quite sometime now. Valuation has become more expensive than what they were say three-four months ago. But, we should not forget that there is a liquidity deluge all over the world and there is lot of money still writing to get invested in India and maybe one good thing about this rally will be that there are lot of good quality paper coming up.

In fact the valuation of IPO maybe slightly higher or lower, but, fact of the matter is that there are quite a few IPOs of large and fundamentally good companies, they will absorb flow of capital. I personally feel that yes, valuations are little higher, they are no longer cheap but I do not think they are prohibitively expensive for investors to invest even at these levels.

Before budget which is February-March, do you expect Indian markets to touch a new all time high which was 21000 on the Sensex, 6100 on the Nifty?

To be very honest at that point in time that appeared very difficult and even now it looks like that there is still a long way away although market has run up to 17000 but, I think it will now consolidate at these levels. So maybe 2-3-5% from here but nobody would have expected this kind of recovery before elections.

What has happened is not only the elections, a few other things have happened globally. If you look at the US market, Dow Jones is nearing now 10,000. That coupled with good policy framework in budget and a stable government that actually has led to this kind of a rally.

What would be your advice for a medium term stock market investor, sector theme ideas, where do you think money or asset appreciation could be expected?

I would say that there are a few sectors that investor can look at, at these levels. Valuations are already high but still there are quite a few PSU banks, that are in single digit PE multiple and there are few growth sectors say infrastructure, road segment in particular, can also build a portfolio with some bit of pharmaceutical as a defensive, hedging upward to the portfolio.

So I will still avoid cyclicals like steel and non-ferrous metal because they have already run up and at these levels I would rather wait and watch but I would invest and build a portfolio around infra, maybe a bit of IT stocks also, now the sentiment has improved there, bank and then FMCG and pharma.

Right, just a quick question, last year we saw what happened during somewhat Samvat 2064 when we saw the markets crumbling, this time around with Diwali almost upon us and the New Year almost upon us, perhaps you could give us a sense of what you are anticipating in the near term?

I do not fear that kind of a crash what we saw last time. Primarily speculative position is not as high, the retail leverage and individual leverage is much lower. If you look at open futures and options position is much-much more comfortable now, relative to the size of the market.

I would think that market will continue to consolidate, it is not going to go down significantly but at these levels one should not get euphoric and buy or put all your money in equities or get leverage. Look for opportunities, the market always gives you opportunities. I am still looking at a lot more stable and of sort of a consolidating market in this Diwali.

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