FII ownership is coming off a 5½ year low and is well off the peak. Mutual
cash balances have reduced over the past three months, but FIIs still have substantial cash in their portfolios. In the meanwhile, the rising equity supply could cause a problem for the market if it gets bunched up, as we saw recently. Sensex is trading at 17.7x and 15x F2010 and F2011 earnings, respectively.
The prospective bottoming out of the growth cycle, reasonable policy momentum, the coming recovery in earnings growth, strong corporate balance sheets, stable politics, and fair valuations, Indian equities are in a sweet spot.
If the global economies improve, there is scope for more aggression with our portfolio. In the meanwhile, consumer and infrastructure sectors will lead the growth recovery and, hence, market performance.
The probability-weighted outcome for the BSE Sensex is 17,000 for June 2010. This is 15% upside from current levels with overweight positions in Discretionary and Industrial sectors.