We are Tied to Ce­ment, Oil, Auto & In­fra Themes

The Economic Times - - Money -

Mar­ket mood may swing quite wildly from eu­pho­ria to de­pres­sion, but fun­da­men­tals like earn­ings are essen­tials for in­vest­ing said Bharti AXA Life’s chief in­vest­ment of­fi­cer San­deep Nanda. In an in­ter­view to Shilpy Sinha, he ex­plained his choices and how he is pre­pared to avoid ob­sta­cles ahead. Edited ex­cerpts:

Cor­po­rate earn­ings have been one of the drags for the mar­ket. How do you look at it? There are sev­eral signs of in­cip­i­ent cycli­cal re­cov­ery in do­mes­tic eco­nomic in­di­ca­tors such as power gen­er­a­tion, ce­ment and petroleum prod­uct de­mand growth. How­ever, a broad based earn­ings re­cov­ery will take time and will also de­pend on how the global econ­omy pans out. To see equity mar­ket re­turns, we have to see earn­ings come back. Wher­ever we see there is vis­i­ble growth, we are fo­cus­ing on those sec­tors. While over­all mar­ket val­u­a­tions at this point are fair, there are pock­ets of bot­tom up at­trac­tive val­u­a­tion in stocks and sec­tors with vis­i­ble growth.

Where do you see value? It in­cludes oil and gas sec­tor, ce­ment, consumer dis­cre­tionary sec­tors such as au­tos, durables and re­tail fi­nan­cial ser­vices. The oil and gas sec­tor is ben­e­fit­ing from strong de­mand and govern­ment pol­icy re­form while ce­ment is ben­e­fit­ing from pub­lic spend­ing-linked de- mand. Com­mer­cial ve­hi­cles are do­ing well and is an area of growth but we have to be se­lec­tive. There will be more fo­cus on consumer dis­cre­tionary. It is go­ing to ben­e­fit from lower in­fla­tion and lower in­ter­est rates. Also de­fence pen­sions have been in­creased and cen­tral govern­ment em­ploy­ees get their wage hike later this year, which will be a pos­i­tive for dis­cre­tionary. There is lot more in­fras­truc­ture spend­ing on roads and ir­ri­ga­tion. So, we are tied to th­ese themes as well. There­fore, our in­vest­ment po­si­tion­ing at this point is driven by vis­i­ble earn­ings growth and a bit of more the­matic in­vest­ment where we can hope to gen­er­ate re­turns. Which are the ar­eas that you are not com­fort­able with? Some of it could be where val­u­a­tions are ex­pen­sive. We would rather not be over­weight consumer sta­ples like soaps, de­ter­gent and food ma­te­rial, es­pe­cially if a cycli­cal re­cov­ery broad­ens and gets stronger. In cap­i­tal goods spend­ing, there are only pock­ets of growth where the govern­ment is spend­ing. We are not go­ing to see wide spread pri­vate cor­po­rate spend­ing soon. Com­pa­nies are tak­ing time to go through the bal­ance sheet delever­ag­ing process. We are thus look­ing to in­vest in com­pa­nies that are into roads, rail­ways and pub­lic sec­tor re­finer­ies, but not other cap­i­tal goods sec­tors. Soft­ware ser­vices sec­tor also has is­sues re­lated to pric­ing and changes in the busi­ness model it­self and slow­down in sev­eral ver­ti­cals. We are also un­der­weight on tele­com. There is more com­pe­ti­tion com­ing in. Tech­nol­ogy is caus­ing lot of up­heavals. Tele­com pol­icy is chang­ing. It’s a bit tricky to in­vest in tele­com.

NOT OVER­WEIGHT

What are the other vari­ables that an in­vestor has to keep an eye on? There are a lot of vari­ables. On the pos­i­tive side if mon­soon is okay, RBI will be con­fi­dent that in­fla­tion will be un­der con­trol. A nor­mal mon­soon would def­i­nitely ad­dress the ru­ral dis­tress we are see­ing and boost ru­ral spend­ing. We need to closely watch do­mes­tic eco­nomic in­di­ca­tors to see if the re­cent cycli­cal re­cov­ery con­tin­ues. Among the known un­knowns, the so called Brexit is­sue will be ex­tremely im­por­tant in the run up to the June ref­er­en­dum in Bri­tain. Any pol­icy shocks from the US Fed or China can also eas­ily cre­ate panic in emerg­ing mar­kets.

Af­ter the Bud­get we saw FIIs com­ing back to In­dia. How do you see their be­hav­iour for the year? Over the last two months, we have seen FIIs com­ing back to In­dia. (It was) a pos­i­tive bud­get in which the govern­ment demon­strated fis­cal dis­ci­pline and global con­cerns eas­ing co­in­cided, af­ter which FII flows turned pos­i­tive on In­dia. For­eign in­vestors had been with­draw­ing money from emerg­ing mar­kets (EMs) for sev­eral weeks. The trend was DM over EM. How­ever, once the dol­lar started to weaken the po­si­tion­ing re­versed. If peo­ple think there is no growth in EMs and that dol­lar is go­ing to strengthen, then DM will be pre­ferred over EM. There could again be a flight of money from emerg­ing mar­kets. A lot of sov­er­eign funds have in­vest­ments in In­dia and other EMs. They could also be fac­ing pres­sure to take money out. Th­ese are the risks could re-ig­nite con­cerns.

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