Bottom-up strategy pays

In the infrastructure sector, it appears that public-private partnerships are here to stay.

Amar Ambani
Amar Ambani

When you just can’t flutter atop, nor do you stutter at rock bottom, bottom-up keeps the clutter away.” This is the ideal buying mantra in this market. The transient fiscal supply is clearly the result of a convalescence dose by world governments, not a topline boost. The market momentum in India shows no signs of a dramatic swing. While the upside on the Nifty could be a mere 6-7%, the excess liquidity leaves little room for any major slide.

Liquidity notwithstanding, Indian equities seem to have chosen to discount some prominent national concerns—poor monsoons, likely monetary control, bleak fiscal deficit situation, among others. This probably stems from the positive rural demand and government support. The ongoing rural employment guarantee scheme, farm waivers, dearness allowance hike and higher minimum support prices augur well for rural- and middle-class purchasing power. In turn, it has helped strengthen market confidence with an eye on the future.

The government’s speed in declaring stimulus packages and the RBI’s proactive response to counter the fiscal crisis have paved the way for a positive economy. Two patterns are becoming evident for the medium term. First, money is likely to move from overbought sectors to those that have not seen a recent rally. Second, non-index stocks are poised to perform better than the Nifty and Sensex companies. A correction in the indices seems imminent. Investors would do well to adopt a bottom-up approach while buying.

Infrastructure looks set to be the biggest sector to win government support. While the fiscal situation may not permit big spends, our channel checks show that public-private partnerships are here to stay. Telecom is another area witnessing a stable demand. While subscriber base additions are steady, mobile phone demand is expected to skyrocket with the 3G rollout, WiMAX networks and mobile number portability implementation. The broadband revolution in rural India is poised to create the world’s single largest market, a lot bigger than the muchapplauded urban revolution.

Coming to scrips, RCom valuations look attractive and the Infratel listing seems a future trigger. Once the Bharti-MTN deal is through, this sector will set new benchmarks in value and volumes. I am equally bullish on the auto industry. It did well during the downturn and has held up reasonably even amid the bad news of poor monsoons. However, valuations seem rich. A prudent strategy would be to choose auto ancillary players focused on the domestic market.

A word of caution. Liquidity is the life blood of this market. If it’s sucked out suddenly (because of an ‘overweight China, underweight India’ sentiment), the ensuing fall could be steep. For now, this doesn’t seem likely as China and India continue to remain pet investments for foreign funds.

Amar Ambani is Vice-President, India Infoline