The bounce back of the Indian equity market on Monday raised hope for another bull run. But experts sounded a note of caution.

Speaking to Bloomberg TV India , Anil Ahuja, CEO, IPEplus Advisors, says the bulk of the rally is being driven by global cues as there is hardly any domestic cue to sustain the rally. The infrastructure space and consumer space are very good thematic stories to play with, he said.

We saw a lovely bounce in the Indian equities market on Monday and markets have been trying to move into a fresh bull territory. What did you think of the strength you see from the bounce back? Will it continue? What’s the conviction of foreign investors when it comes to the India growth story?

There is a lot of conviction on the India story. There is no doubt about that. I think it is probably the best story around. But I still think the bulk of the rally is being driven by global cues. I don’t think we are getting the domestic cues needed to produce a sustained rally at this point of time. So, my take is that we are entirely dependent on global cues, global risk-on and risk-off situations. And that’s what is driving our local markets unless we generate some local cues which are convincing.

From a sectoral perspective, what part of Indian companies do you find thematically most interesting? What do the global investors find the most interesting?

Let’s break this up into two parts. Financials have always been interesting to global investors and I think from an Indian perspective, they are extremely critical. I just think financials have not lived up to their promise. And what is going on today on the financial sector is a clean-up process or at least recognising a problem and bringing them up to the fore, which is very important. And I think in the long run, it will help us significantly, both from the structure of the market and from the confidence in the market. If you take the entire PSU pack, even the private sector that has material access to stressed assets, a lot of these issues are being recognised and the government and the banking system and every other agency has shown a willingness to proceed aggressively to try and fix the problem. I think that is a huge step. So let’s put that aside. I think that sector is extremely important and interesting to everybody and we will come back to it at some point of time.

Outside that, I think the infrastructure space and the consumer space are very good thematic stories to play with. On the government spending, I think we are clearly seeing positive signs — whether it is on roads, railways, or defence-related spending. We have to make sure that there is movement on that front. And the consumer’s story is always there. I think we need a positive monsoon, which hopefully we will get, and that story should come back. And by consumer I’m talking about a slightly broader sector than FMCG to discretionary sectors such as the auto, which should flow from that.

How do you see the momentum of capital flows given the global markets? The global markets are walking a tight rope and there are question marks on Fed, China and oil prices. Given this context, do you see more money flowing in or do you see investors just preferring to just sit on it?

I am actually concerned about global flows because we’re getting excited about small numbers. But if you go back a couple of years, India was always a country that collected, give or take, $20 billion a year in net inflows from FIIs. We’re not seeing those numbers anymore. We are seeing pretty marginal flows on FII net inflows. My bigger concern is actually on the domestic flows because flows into equity mutual funds is less than half of what it used to be 12 months ago. So I think that is a matter of concern that one year on, we’re still running some few thousand crore as opposed to ₹7,000-8,000 crore a month.

We have seen a number of new IPOs come into the market. They are interesting in the sense that they are from the sectors where we did not have exposure to. You have seen a couple of IPOs in the pathological space; we have also seen some restaurant IPOs, food IPOs or may be newer bank IPOs. Do you think that the market needs a little more diversity for money to flow in? In fact, a lot of the new Indian sectors are just not reflected in the listed space.

I am not so worried about the listed space. Before the FIIs get excited, you need a base size. Even if you take Ujjivan which was one of the largest IPOs recently — about ₹800 crore — we are talking about a free float which will not be large enough for anybody who wants to come in with $10 million or go out with $10 million on a given day or over a couple of days. I think we will see that restriction. I think for the larger part for the big money, your top 100 stocks remain the critical market. The rest of it frankly does not even get the kind of coverage you need.

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