Markets have been on an upward trajectory on the back of positive sentiments across the globe and policy initiatives by the Indian government. While remaining bullish about the prospects, R Venkataraman, managing director and chief executive officer of IIFL, tells Puneet Wadhwa there is a strong chance of backlash and corruption issues returning to haunt the government. Companies would like to deleverage and also wait to see a sustained uptick in policy before making fresh investments, he says. Edited excerpts:

How convinced are you that the current market rally will sustain? What factors can spoil the party at the global and domestic levels?
An open-ended third round of quantitative easing (QE3) programme by the US Federal Reserve and similar actions by Japan and the European Central Bank (ECB) have enthused the equity markets. The Fed has also promised to keep interest rates low till 2015.

Back home, sudden policy moves by the government have been a welcome surprise. Further action on the policy front is anticipated in the coming weeks, which will keep sentiments high. With Nifty valuations at 13.5 times FY14 earnings, another 250-400 points upmove is on the cards.

Talking about party spoilers, the QE money creating commodity asset bubbles is a concern. After the initial excitement, world markets will also need to see a reduction in deficit levels and unemployment in global economies. Similarly for India, structural imbalances like the ballooning fiscal deficit, current account deficit; sluggish deposit growth and capex (capital expenditure) cycle need to be watched.

What is your advise to investors now?
Tactically, we have recommended higher weightage for high beta stocks and reduction in defensive positions to our clients. Gold has been another asset on our buy list due to easy monetary policy across the globe.

The next few months are crucial for the government as it rolls out more policy measures before starting preparations for the Union Budget. How do you see the December quarter panning out for the economy, markets and foreign flows?
It’s very difficult to predict movement of foreign flows quarter-on-quarter. One can be hopeful of some long-term flows in the form of foreign direct investment (FDI) in the coming months, though. In terms of GDP (gross domestic product) growth, the quarter will not see huge improvement as steps take time to shape the economy. While the policy action so far has been encouraging, there is a strong chance of backlash and corruption issues returning to haunt the government.

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