Despite FII flow, markets to lose steam ahead of elections, budget: Morgan Stanley

With FMCG and pharma stocks being too expensive when compared to valuations of the Nifty itself, it is time to book profits in both the sectors, said Gaurav Doshi, Morgan Stanley Private Wealth Management in an interview to CNBC TV 18.

He said the worst of earnings downgrades were over and most analysts would now maintain their estimates for various companies. So one could start looking at bruised sectors like capital goods and infrastructure in another quarter’s time.

For the rally in Nifty, he says many stocks have now become more expensive than their fundamentals can allow. The funds are mostly flowing in from emerging market funds and India, being an emerging market, is benefiting from the global allocation. But there are not many hedge funds or long-only funds that are still active in the markets.

As a result, the market rally could lose steam. He said 4800 would be a more reasonable level for Nifty. At this level, it could strengthen its fundamentals and then move up higher.

He explained while US ans Europe could be muddling with growth, emerging markets like Japan will do better due to low base as well. “The Fed has maintained that liquidity will be abundant till 2014 and therefore while the capital is there in the system it’s going to chase economies with growth and currently that’s what the emerging markets are offering.”

Watch video: Morgan Stanley fears rally may lose steam at 5300-5400