Pankaj Murarka, Head — Equity, Axis Mutual Fund, feels that while the markets seem fairly valued overall, there are pockets where potential growth opportunities are not priced in yet. Edited excerpts from an interview with BusinessLine :

Last quarter was a big disappointment on the corporate earnings front. What’s going to be different this time?

I think the first half will still remain lacklustre because the uptick in the real economy has got pushed back. While the government has been taking the right steps, it has yet not translated into growth in the real economy. If the monsoon is favourable, we should see this happening towards the latter part of the year.

Which are the sectors you are positive on right now?

We like consumer discretionary. There is significant pent up demand in the economy. As and when the economic environment is better and consumer confidence is back, consumers will start spending. We are also positive on domestic cyclicals, such as autos.

The domestic capital goods sector, which has been significantly impacted because of the slowdown in the last four to five years, will also do well, thanks to their low base. Besides, I think private sector financials hold promise.

They have been consistently taking away market share from State-owned financials. Their growth has been reasonably strong despite the slowdown.

These apart, there is significant reform in the media sector in terms of digitisation leading to significant opportunities, both on the broadcasting side and on the distribution side. We have also turned positive on telecom, with most of the regulatory challenges behind it.

How do you see urban vis-à-vis rural demand shaping up?

Demand or recovery will be driven by urban consumers. If you look back, urban consumption was the first to slow down. While urban consumption started slowing down in 2010 itself, rural consumption was holding up until 2011-12. That was primarily because of the high inflation we had.

Now, growth will be led by urban demand. If there is improvement in job creation, the economy and rural consumption will follow suit.

The only lasting solution to all our economic and social problems is high growth. High growth will create jobs, lead to better wages, more productivity, and improve earnings for people at the bottom of the pyramid.

I think we are trying to move our economy in that direction where we have moderated inflation. Now, if we can channelise our investments to facilitate an atmosphere where growth can be higher, the job creation will happen. While Axis Equity and Axis Long-term Equity have seen good inflow, the Focused 25 fund still remains small…

It reflects our investment philosophy. As investors, we tend to be high-conviction investors. A portfolio of only 25 stocks tends to be a more high conviction portfolio. At the same time it is reasonably diversified. Though it can have risk in the short term in terms of divergence of performance vis-à-vis the benchmark, if you take a medium- to long term-view, the portfolio will do well.

The fund is just completing three years of existence. Many of our investors and potential partners are waiting for that three-year performance record. Now we could probably see significant traction in inflows. But the fund is already showing promise in terms of returns.

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