Yields in India must remain in 5-6% range: Shankar Sharma

He believes the yields are nothing but a symptom of the underlying problem. “That is effectively what the market’s message is. Yields will trend higher, standalone they may not have been a problem but when you juxtapose that with sky-high deficits on the current account and on the internal fisc for the US – in some sense India is also similar – and the second side of it is getting borne by the currency which is the US dollar – when you see both of these things together which is rising yields, falling currency and a sky-high deficit situation, that is where the problem lies. So I don’t think standalone it is a problem that yields are rising,” he stated.

“In India, from the time I entered the market which was the late 1980s, we were used to very high-interest rates. Therefore equity markets did nothing for 10 years. It is only when yields started to crash and around 2004, they went down to as low as 5 percent, there was a massive bull market in India when we compounded 50-55 percent for three-four years up until 2008 January. There could be a repeat of that kind of return spectrum provided yields in India remain around 5-6 percent levels,” he further mentioned.

On stock-picking strategy Sharma said, “We have been very light on at least the US tech part right from September onwards. We have been long oil and commodities in general from late March and early April and that has worked out as well. Broadly, I do believe that this whole rising yields, weakening US dollar bode well for commodities and that is a trade at least we have been on from April last year. So steel stocks in India, steel stocks globally, copper companies globally, mix plays in India - so you have several companies in India in the ferrous and non-ferrous side, we have played all of those. So I think that is a decent place to be. This is my view as of right now, I will change tomorrow if things change. With that caveat, we think the markets are going to be worrying about inflation if not now I think in the very near–term future.”

“If inflation perks up in India or globally, I think the very logical place to be in is the rural economy. If inflation perks up, there are still ways to make money, one should not get scared, one should be in the rural end of the market,” he said.

According to him, oil has been India's biggest problem. “The other big problem is oil prices. That is an old bug there from the time I have been born. The only problem India has had is that everything is fine but oil is very high. If oil goes into this so called super cycle that all the strategists and brokerage firms are talking about, then our goose is cooked because if we have rising bond yields, which will again be a corollary, an outcome of higher oil prices because you will need to tighten rates to curb inflation, which will then again push up the yields. It becomes a little bit of a pickle that we might get into. So, if oil goes to USD 70-100 per barrel, India suffers,” he pointed out.