Market Analysis

'Investors should tone down expectations' (The Economic Times 5th Feb 2008)DSP Merrill Lynch head of research Jyotivardhan Jaipuria is upbeat about India story as companies are going at an average rate of 18-19%. In an interview he said global slowdown notwithstanding, the country still looks attractive to foreign investors. Excerpts: What is your reading of the latest batch of corporate numbers? We were expecting corporate numbers to be weaker than what they were over the past three-four years. Weaker in the sense, last three-four years we have seen a compounded annual growth of 27% while last year growth was around 35%. Overall, I would say numbers beat our estimates — both on operating and profits side. But yes they are weaker than before. This year we should end up with growth of 18-19%, which is good. In fact earnings growth will be 17-18% for the next couple of years. Earnings growth will decelerate but still be strong. What one needs to understand is that the globe is going through a slowdown, hence earnings growth will be scarce. So India at 18-19% still looks good. So what is the trigger now for investors to buy? What we are witnessing today is a very minor correction. The last six years, the market has moved only one way (up). It has gone up almost six times, which is very high and with no correction as such. I think that over the last few years, making money has become so very easy, that the risk perception and return expectation has got skewed completely. Markets in the long term are supposed to give you 15-17% returns not 50-60% returns. So we are at a phase, where we have seen such sharp gains that we need to consolidate. India is not alone in this. We enjoyed a rally in line with the global rally. India has corrected in line with global markets, in fact most Asian markets have corrected as much as India has. In fact last year India beat them by huge margins in terms of returns. More