Inflation could be a spoiler for Indian markets: Vasu Menon, OCBC Bank

In an interview with ET Now, Vasu Menon, VP-Wealth Management, OCBC Bank, spoke on the Indian markets and equities. Excerpts: Do you think the gains for Indian markets have been too soon and too fast? Clearly the Indian market has done exceptionally well this year. The index is up almost 14% in local currency terms, and in US dollar terms it is almost up 16%. There has been a huge surge of foreign fund inflows in the Indian equities. You have had about close to $15 billion flowing into Indian equities, that is about 60% more than what you had last year. Clearly the story is good. The Indian growth story is good. The Indian economy is growing at 8.8%, corporate governance is strong in India, you have the monsoon, you have strong domestic demand. So the story is strong. Relative to China, India looks like it’s doing fairly well on the economic front. So yes at this juncture at 20000, it looks like it is going to hit a bit of resistance. If you look at the PE multiples for the Indian stock market, 2010 earnings are trading at probably about 19 times and 2011 earnings are probably trading at about 16 to 17 times. That is relatively high compared to the MSCI Asia ex-Japan index which is probably trading at about 13.5 for 2010 and about close to 11.5 for 2011. So India is trading at a premium. Probably you could see a little bit of pullback, but the long-term picture is still very positive for India. So from the short to medium term, what are the investment themes and sectors that you are betting on when it comes to Indian equities? I do not cover Indian equities. But I think if you look at India, clearly one area that is still lacking is infrastructure. Compared to China I think India still has a lot of room for infrastructure spending. The government will clearly have to commit quite a bit of resources in that area and I think that is going to augur well for infrastructure-related stocks in India. The other area which looks pretty good is the consumer related sector because India has got an affluent population, a young population. The economy is booming, and affluence is growing. The consumer sector is booming and anybody who invests in the Indian stock market, cannot ignore those key sectors.