In an interview with CNBC-TV18, Anup Bagchi, Executive Director of ICICI Securities, spoke about his outlook for 2010.

Q: Are you expecting 2010 to be a sedate year for stock markets?

A: 2009 was spectacular because of the base effect. For 2010, the expectations should be tempered. It will now try to align itself to the earnings growth. Hence, we expect 15-20% growth and that is what will get reflected in the index as well. We also feel volatility will be a shade lower than what it was in 2009 second half. Therefore, it will be more sedate than what it was. The big learning of the whole decade is that three life threatening things happened to the financial market. It started of with the dot com bust, then there was 9/11, Lehman brother and then the financial crisis. Index gave 3.5 times return.

Even if you see July 2008, which is where the big euphoria and exuberance started to November 2009 or even today, if a person had done a SIP only on the index, he would still have got around 12-12.5% return. If you are sitting in a growth market we have to invest in equities. There will be two-three bad years but overall it just makes up. Case for staying invested and investing more in equities is never as stronger as it is today.

Q: Are you advocating investing in an index base kind of a fund? The index always throws out bad stocks and brings in good stocks, so 10 years ago if I had an index it had Britania and did nothing then it had NIIT in it. When the dot come bust came they threw out NIIT. The index always picks the leader of whatever is the leader of that particular point and may not give you 3.5 times if you were doing stock by stock. Are you advocating just by an exchange traded fund or a fund which replicates the index and that is better way than picking stocks individually?

A: From a retail investors perspective if you have the time and inclination to research then certainly go for stock picking because there is always a chance of out performing the index otherwise just get into a largecap diversified funds. If you want to do directly into equities just get into buying index fund or go for largecap diversified which is an indirect way of investing in equities but equities is a must. So for a retailer buying into an index fund is not a bad idea at all.

Q: With regards to fund flows -Do you think that we could have another stellar 2010 just driven by such strong liquidity with these funds and perhaps a shortage in the amount of paper and maybe in the second half the paper picks up but maybe the trend just continues because its really the money that you have to put, which the investors mandated you to put?

A: The last three-four years’ data has only been increasing consistently year on year, so 2008-09 was higher than 2007-08. It does give semblance of a lot of stability to the inflows into the equity market. Mutual funds however are more volatile. There could be lot of inflows into mutual fund and that in fact while there will be a fundamental thing which will try to balance the index. Liquidity flows could give us a positive surprise.

The third thing is allocation. There is no reason that it will be any lower than last year. It will be our capacity to absorb that liquidity and use it for the better. Liquidity has to be seen whether it’s coming through primary markets which is QIP or through the secondary market.

Hopefully, most of it is also going to come through the primary market which means it will not run away to a runaway reaction and liquidity up move but it will be able to absorb. Indian economy and corporate will be able to get the required capital in a muted way. So the index will not misbehave while one will get capital. This is the best scenario that is going to pan out. So if you were to ask us it is still a buy on dips and not sell on rallies.

Q: What kind of stocks, sectors would you pick?

A: Among the commodities, we see tea and sugar sector to be positive. Power Sector and infrastructure will still be positive. Hotels are going to be very big. As things are normalizing, I think hotels will get a very big boost.

So if you were to look at sectors these are the few that can come in. Oil and Gas also could turn out to be positive. Even though there could be an increase in interest rate, if the interest rate increase happens with an increase in credit growth, it will be very positive for banks.

Few of our next years picks would be NHPC, Shree Renuka Sugars, and Jayshree Tea. These are the few stocks which will out perform the market. A broader base from retail investor would be stay invested in the market, do a systematic investment plans if you don’t want to go after stocks and if you just stay invested you would be able to meet the goals and the returns would be good.

Source : Moneycontrol

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