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Tushar Pradhan, CIO of AIG Global expects more uncertain news to hit the market before coming to an end. He said that the foreign funds still believe that India is still expensive market in terms of P/E.The biggest risk in the market is the political uncertainty with some sectors, he said.

Excerpts from CNBC-TV18’s exclusive interview with Tushar Pradhan:

Q: What are you expecting to see over the next few weeks from the market, in an attempt to break the range or remain within it?

A: The market clearly is looking for some sort of interest from the foreigners - as you know a lot of free float in the Indian markets is owned by the foreigners and as a result, we find that it’s always interesting to see what they do at the margins. If at the margin they continue to put in money, you can see the market run up from here, simply for the fact that, the fundamentals have always looked very attractive. It's just a matter of time when the net negative inflows; we have seen close to USD 3 billion and if that happens, we should see the markets start doing jumps from here.

Q: What’s your own view, will we see that kind of money coming in, because the last few weeks, despite the markets sort of seeming stabilizing, we aren’t seeing too much by way of global interest or inflows?

A: One has to realize that the news coming out of the US, is still not very good, and a lot more news have to hit before all of this actually comes to a close. In terms of uncertainty, everybody agrees now that the housing market in the US is pretty much in decline, but how much of this now spreads to either consumer debt, credit cards and employment numbers - that’s something that everybody is apprehensive about. Unless in the global markets there is some sort of confidence, that we have seen the worst, this sort of nibbling away, or uncertain moves into other asset classes will continue and I don’t think it will be a strong trend. But once there is some sort of confidence in the US domestic markets - that look, things are over now, to the extent that we can imagine, that is when, I think you should see considerable surge of money into global emerging markets.

Q: What’s your call on this whole commodity rally, you launched the AIG World Gold fund, do you see this kind of pace of appreciation of gold, crude continuing together?

A: The interactions that we have had with our team in Zurich, which the fund runs, tells me that on an inflation adjusted basis, I can definitely say that gold has not really reached the peaks that it had reached in 1980 for example. Also the demand for gold, in the face of an international financial turmoil, as well as investment demand coupled with a fabrication demand in China and India, just points to the fact that there is so much more demand for this commodity versus the kind of supply that we have usually seen in the market which just indicates that the dynamics of demand and supply will indicate that the gold prices will go up.

Likewise, in oil, if the growth, as China surprised everybody with very strong GDP numbers yesterday, continues the demand for resources such as oil and all the other commodities don’t see any sign of abatement, and as we know, supply is as much incrementally across the world, which means that the price rise in commodities may continued.

Q: How have you read the pullback in technology, specifically some of the mid cap IT stocks do you think there is value there that could be tapped?

A: If you just look at absolute valuations, some of them have not reached double digits in terms of the estimate growth earnings; in terms of the next year, one has to take all of this with a pinch of salt and one has to realize that the pain may not be really uniform. For example, we clearly know that banks and financial companies in the US have taken a big beating, and IT budgets especially in this have need to be looked at carefully. So any company which has an undue concentration or business coming from this sector especially in the US, maybe a little bit under a cloud. But I think otherwise the dynamics of the business yet continue to remain pretty robust and in the long run, this business will pretty much sustain the decent growth rate that we have seen in the past and the future as well.

Q: What’s your own sense of how money is going to be approaching in this market by the time we have rapped up the earnings, we have been one of the bigger under performers across emerging markets, and do you think the money interest will come back if we remain range bound at best?

A: The money interest is dependant on two factors; one is the fundamental attractiveness of the market, and the second is the confidence that the foreigners place in emerging markets at any point of time. On the first count, there is a feeling across foreign investors that India has remained an expensive market. If you see, the other markets have corrected more than India and on a PE basis, India looks a little more expensive, the apprehension prevailent might be for that reason. As investors get a little more comfortable with the kind of growth sustenance that India will show, in earnings, possibly over the next 2-3 years, is when the confidence will come back. So I guess it’s probably only a matter of time when the earnings numbers, as they keep coming, in the quarters to come, will show the confidence that most of the investors today lack.

Q: How would you approach sectors like cement and steel in the light of the inflation scare and the targeting that these sectors are seeing from the policy makers?

A: That’s the biggest risk in the market - if it were up to a pure demand and supply of course it will be easier to figure out. But I believe that, the government has its own reasons to ensure that inflation remains very stable. Let me also remind you that having a very stable inflation environment is actually very good for the entire economy. So as much as it might be, there may be some short-term pain for these businesses in the industry where they will see input costs rise. But they will not be able to actually effect the price rise in the interim. I think, the smoothening out may not hurt everybody to the same extent, there are people and companies which have integration of their raw materials well into their own control which means that the margins will yet be sustainable. The pain is not going to be universal, it’s going to be in pockets and I believe that is the reality that most of these companies will have to live with, at least for the next few months.

Disclaimer: It is safe to assume that my clients & I may have an interest in the stocks/sectors discussed.

Source: Moneycontrol.com