By Vipin Agnihotri
In my opinion, Indian capital markets are increasingly taking their cues from global markets. Generally speaking, no sector is completely insulated from the impact of a US and global slowdown, but there are obviously few sectors that are more protected as compared to others.
According to experts, sectors such as textiles, auto ancillaries, IT and pharma, which are quite dependent on US demand, are the ones that investors have to be careful about. It has been noticed that big investors have been pulling money out of stocks that are heavily reliant on US demand. For example, IT at this moment of time is the most underweight stock in the portfolio of big investors.
Point to be noted here is that India’s domestic growth story is still quite robust, making the capital goods, consumer products, banking and financial services, infrastructure and telecom sectors great investment propositions. There are some experts who feel that the impact of the US slowdown has already been discounted in the top-tier IT and pharma companies, which are basically US-dependent.
In my opinion, IT companies such as Wipro, TCS and Infosys Technologies are trading at price-earnings (P/E) multiples of 10 to 13, on the basis of 2010 earnings, and their returns on equity (RoE) and cash flows are strong. Another intriguing thing is that global investors facing a slowdown are likely to have a reduced tendency to take the risk of investing in the Indian real estate sector. However, I am pretty sure that construction companies doing contractual work are good investments.
The pivotal factor here is that as the US slows down, investors there are bound to look at India as an attractive investment destination. Therefore, there is quite a good chance that liquidity will remain strong. ONGC, HPCL, JP Associates, GMR, L&T and NTPC can deliver returns because of their reliance on the domestic economy, which continues to be strong.
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