'The market seems to have discounted the negative news'

Sandip Sabharwal, CEO-PMS, Prabhudas Lilladher says that after twelve months, the outlook would be looking much better and the situation will be sanguine for investments.

How do you view the recent developments in Japan? Do you see this as a major incident impacting global markets?

Although, the earthquake and the following tsunami are big disasters in Japan, its affects in India should be very limited and restricted to companies that source components and other parts out of Japan. Its impact could be more on the major trading partners of Japan.

However, given the correction in global markets, this incident seems to have been well discounted now. Its long-term effects should be limited.

Given the recent Budget proposals and the correction in the Indian equity markets, are the markets looking attractive for investments from a valuation perspective?

One of the major reasons for the underperformance of emerging markets over the last six months has been the play against inflation facing economies.

However, this threat is generic now, and most developed world countries are also facing this threat.

The key for investors today is to evaluate how things will be a year from now and not how things look today.

Also, whether the relevant concerns have already been factored into the markets, as they have performed over the last few months.

I believe that 12 months from now, when we sit and analyse the markets, headline inflation could be four-five per cent.

The government would be more stable as the scams and governance issues would be behind us, growth outlook would be looking much better and the situation will be sanguine for investments.

Valuations of the Indian markets have now come to 14.5-15x 2012 earnings for the large-cap indices and more near the 10x earnings for the mid caps. This looks very attractive given the growth prospects.

How are foreign institutional investors viewing the political and economic developments in India? Do you expect fund flows to slow down in the calendar year 2011?

Overall, the markets seem to have discounted the negative news flow. Although, fund flow from foreign investors has been negative for the year till date, overall we should see inflows of at least $5-6 billion, if not more.

The good part is that mutual funds have now started seeing good net inflows after two years of continuous outflows. This will add to the stability.

Overall, the net institutional fund flow should be in the region of $15 billion in the current year.