‘Bank & NBFC stocks may look attractive in near term’
Markets are trying to find their feet after a sharp fall. SARAVANA KUMAR, chief investment officer at LIC Mutual Fund, tells PuneetWadhwa that investors should focus on large-cap schemes in these uncertain times. Markets, he says, will be watching what impact the upcoming state polls have on economic reforms as well as pre-poll alliances. Edited excerpts:
What is your market outlook for the next few quarters?
In the last two months, the global headwinds were significant and are likely to persist for some more time. This could make the correction period a bit longer. US equity market correction and a rise in US treasury and bond yields had made the emerging markets (EM) equity less favourable. Back home, rise in crude oil prices, depreciation in the rupee, credit default by IL&FS and its group companies, a possible asset-liability mismatch in non-bank finance companies (NBFCs), outcome of five state elections in 2018 and outcome of the general elections in 2019 are some factors that will keep the sentiment in check.
Should one use the correction to buy bank or NBFC stocks?
We expect the growth rates for NBFCs to slow. Due to cash flow challenges, high leverage NBFCs may face further challenges in growth and profitability. This may result in headwinds in the NBFC space for some more time. Investors may get an opportunity to buy bank and NBFC stocks at lower levels.
What are your overweight and underweight sectors?
Export-oriented sectors like pharmaceuticals, information technology (IT), agro chemicals, select auto original equipment manufacturers (OEMs) and auto ancillaries as well as FMCGs would do well. Private banks that have good current account & savings account (CASA) deposits and better risk management practices are also likely to perform well.
What are your cash levels?
We have been holding some percentage of cash and this is more because of the upcoming five state elections that have created some uncertainty. We are now deploying cash based on stock valuations and growth potential.
How do you see the mid-and small-cap segments fare in comparison to their large-cap peers over the next one year?
During volatile times, retail investors should focus on investing in large-cap equity schemes. In a bear phase, the large-cap index would outperform small-and mid-caps. Even from a risk-adjusted return viewpoint, the large-caps would give better returns as well as liquidity.
Are you facing any redemption pressure in any of your schemes?
No. We are not facing any redemption pressure. Rather, we are getting inflows into our large-cap and mid-cap schemes. Since India’s per capita savings rate, mainly in financial assets, is growing, mutual funds would attract good equity inflow in schemes through lump-sum as well as systematic investment plans .
Your view on corporate earnings growth for FY19 and FY20?
The combined net sales of companies in the Nifty50 index are likely to grow 26 per cent year-on-year. This is likely to come from strong growth in consumer, information technology (IT), upstream oil & gas and select retail banks. Two-wheeler companies are likely to drive earnings growth of the sector for the September 2018 quarter due to sustained volume growth despite many disruptions. A sharp rupee depreciation in calendar year 2018 (CY18) and momentum in IT projects on the digital platform will be key growth drivers for the IT sector in the September 2018 quarter.