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Raamdeo Agrawal, Director and Co-founder, Motilal Oswal Securities, said the markets needs to pause for some time at current levels. "The markets look healthy at current levels and are likely to head higher."

According to Agrawal, good earnings have seen positive response and bad stocks are being punished. "The 18-20% growth is likely to continue. Topline growth is seen at 21-22%. Companies are likely to do better in Q1 FY09."

Markets are trading close to 17 times, which is not a very high level, he said. "However, oil around USD 120 per barrel is a major concern. Even the fiscal situation remains a concern on account of high oil prices."

Excerpts from CNBC-TV18’s exclusive interview with Raamdeo Agrawal:

Q: Will we see more gains in May or does the market need to pause now?

A: The market needs to pause for sometime. My sense is that the market is headed higher because the earnings season is in progress and earnings have been somewhat better than what we had expected when we came out with a result preview.

Q: Do you think the Sensex is good for another 1,000 points over the next few weeks? Is that being too ambitious?

A: The ground reality is not looking as spooky. Stock movements and the movement of indices is much more solid. It was very unsettling a month back. Now, things are happening in a much more rational fashion. The market is responding to good earnings positively and bad stocks are being punished and that too in a calibrated fashion. So, I think it’s a much more healthy market right now.

Q: Most un-audited earnings have already come in, so are we on that 18-20% kind of a trajectory or do you think the numbers in May and June could be not as good as the ones that we have seen already?

A: 21 Sensex companies have come out with their numbers till date, and the estimated EBDITA is up by about 19.5% against our estimates of 15.5%. PAT is up by about 21% as against our estimates of 15.5%. Because of the sharp fall in the market, they projected a little lower outlook. The markets were depressed and expectations from all companies were lowered down to 20-21% growth, on the back of topline growth of about 22-23%.

There is massive increase in the cost of money, including the cost of arbitrage. Whatever forex derivatives were there, it is up by about 30-32%. So, the financial leverage is against the company and that has beaten down PBT growth to about 21%. On the whole, Q4 result is turning out to be very good and Q1 next year should be much better because growth in interest cost will not be as steep as Q4 as that has been impacted clearly by the forex derivative losses built into finance cost.

Q: What about valuations from here? After this pull back, we are now trading close to about 17 times. Do you think the market should be justifiably trading at higher levels, given the kind of environment that we are trading in or is 17 a fair kind of a multiple for this market and the environment?

A: 17 is not a very high level of multiple; neither is it very depressed. Clearly, it is not very euphoric. The issue is that one of the variable which scares me is USD 120/bbl of oil. So far the rising oil price has always led to rising share prices and somehow world over corporate earnings are very good. Even the valuations are very good and particularly in India where the entire rise has not been passed on to the consumer. I don’t think there is major danger to the markets and there is no way there can be a major collapse in a very short while.

Q: How do you read the market’s reaction to the developments happening with Bharti and MTN?

A: The market is apprehensive. One good thing about the wireless business is the secular and predictable cash flows they have with this business. So, for the bankers to fund the deal is very easy and cost effective. One has to see if the deal happens and is it just a piece of the company being bought for strategic investment or the whole company being restructured to somewhat be part of Bharti’s operations. In that case, what is the debt equity used to actually fund the deal also has to be seen.

Q: Are you a bit surprised at the way Bharti has moved since its numbers because for the last many quarters it’s been such a rangebound stock and even after spectacular quarterly earnings, its not gone anywhere, its still moving in the Rs 800-900 band. What do you think is worrying the market?

A: Actually, the stock is where it was almost a year back at about Rs 850-900. Year on year, it has done nothing; it went to Rs 1,200 and came back again. So, first it was the spectrum issue and the upcoming competition from the new players. The news flow, at least in the newspapers, were somewhat negative and analysts understanding is that they will be very badly impacted once the new competition comes. So, till that new competition fear is out of the way, the stock will not be fully rerated to its potential, which is being reflected in the quarterly results.

Q: We saw a relief rally in real estate stocks after the credit policy and monetary policy. But that seems to be fizzling out. What’s your take on the sector after the serious derating that happened in the last three months? Do you find any value there or not yet?

A: The tight liquidity situation, higher cost of money and lending restrictions that the government has put on the sector is clearly going to hurt. This sector has become very large and is going to become much larger in the years to come. But right now, the players in the sector are trying to actually jack up the prices of real estate to fancy levels and make a lot of money rather than focus on the volume and make a reasonable price for real estate. So, the whole rules for the game will change once this particular cycle changes and all the new constructions come to the market and corrections get over.

People will start delivering much larger volumes because fundamentally this country needs a lot of real estate whether it is commercial, housing or high, low or mid-end. We need a lot of real estate and the opportunity is very limited. The issue is who can deliver in a cost effective manner and take care of the purchasing power of the society.

Source: Moneycontrol.com