GST is not a one-month or a one-quarter phenomenon. It will take, may be, two-three years for the positive impact to flow in, says Rohit Singhania, Vice President and Fund Manager, DSP BlackRock Investment Managers. Excerpts from an interview:

The markets are now trading close to their 52-week high. How do valuations look?

From a historical perspective, valuations today seem to be slightly on the higher side. But look at it traditionally as to how equity markets move, which is a combination of earnings growth expectations over the next few years, domestic policy expectations and macro-economic indicators, amongst others. When we look at all these, we are not too worried on valuations.

Recent strong flows (especially foreign) into equities are also one of the reasons for valuation getting stretched in the near term. Traditionally, this kind of momentum can stretch, and it is very difficult to time as to when such flows can pause or even reverse.

On the domestic side, we have seen a shift towards equity as an investment class over the last few years, the reason being substitute investment opportunities such as real estate, gold have not being doing as well. Yes, we are close to 52-week highs and index valuations may seem to be on the higher side, but instead of the market valuation, the focus is on individual stocks and overall portfolio construct.

Can markets provide double-digit gains from here on?

It is difficult to predict how markets can behave in the short term. However, historically, in the last 10 years or so, markets have provided positive returns over 80 per cent of the time. While we expect an earnings growth of 13-15 per cent CAGR in the next few years, if this happens, markets can yield decent gains.

What themes are expected to do well in the next 3 to 5 years?

We expect good economic progress for the country. We continue to have favourable demographic profile and the monsoon has done well so far this year. If we sit today and take a three to five-year call, we would be positive on the consumer consumption part, which includes autos, paints, plastics, consumer durables and electronics. The second theme that we are constructive on is traditional businesses such as textiles and chemicals which, at one point in time, were leaders. These sectors are now making a strong comeback. Thirdly, if India has to grow, infrastructure has to be built, for which cement and other infrastructure-related companies can do well. Gas marketing and distribution companies are also expected to do well.

Your top holding in DSP BR Opportunities and TIGER fund is SBI. Is the worst over for PSU banks?

In the case of PSU banks one needs to look at the NPA cycle. Some PSU banks are in a league of their own and have managed to protect their capital. Valuations are cheap and their NPAs are comparatively lower and are expected to trend downwards. Other businesses such as asset management and insurance are expected to do well for some of them.

Your Opportunities and Tax saver fund share a common bench-mark (Nifty 500). Is your portfolio strategy different?

The overall strategy and portfolio construction (sectoral thoughts and stock selection) is the same across funds. We have common sector underweight and overweight across these two funds as well. These funds have almost 65 to 70 per cent of stocks in common.

If we like a business which may have run up in the short term, but is expected to compound well over the next 2-3 years, we may take a higher exposure in the Tax fund initially. In the opportunities fund, we may build our positions gradually.

In terms of portfolio activity, if we have made profits on higher weights in the opportunity fund, we try to be dynamic in terms of booking profit or adding a fresh position.

For instance, if we like a stock with good fundamentals and we understand the business quite well, probably the weight that we would take on the Opportunities fund would be higher than what is taken on the Tax fund, if we think it can provide good returns in the next 1 to 2 years.

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