“Good stocks continue to be expensive and cheap stocks have a problem,” says Anup Maheshwari, Executive Vice President and Head – Equities, DSPBR Mutual Fund. But he remains positive on private banks and pharma stocks. Excerpts from an interview:

When do you expect earnings growth to improve?

For quite some time now, there has been this ‘rolling growth’ hope — that two quarters down the line, things will look better. But it has still been hope. The problem is there is no support for growth, globally and domestically. At home, consumption is slow, investment cycle is very muted in the private sector and the government also is not spending much.

Corporate profits have been sluggish. We have been stuck in this rut of ₹85,000-90,000 crore profit levels across the companies we look at. It’s going to be in the same band in the September quarter too. In the December quarter, we expect profits to shift up to ₹1 lakh crore. December 2014 was the worst quarter in the last three to four years, with profits around ₹86,000 crore.

So, moving to ₹1 lakh crore now will look like 17-18 per cent growth in the December 2015 quarter.

The key is whether this will sustain. We don’t have the answer. But, when we talk to companies, a common crib is that working capital cycle is very tight.

When the cycle turns, that will be the first change in corporate sentiment. Only then the private sector will start its capex cycle. So, we are keeping a close watch on the working capital cycle. The cycle will benefit if the government starts spending or puts more money into the system.

The hope is that in 6-12 months, money will start flowing and improve the cycle. Also, on the consumption side, with one rank one pension, pay commission, etc., there will hopefully be more disposable income.

Have market corrections so far brought in more buying opportunities?

No, the good stocks continue to be expensive and cheap stocks have a problem. But the good thing is if you look at the index, it is very different today from what it was in 2007. Then, almost two-thirds of the Nifty was cyclical. Now it’s only one-third. Two-thirds are defensives — private banks, pharma, IT, etc. One-third, which is not doing well, is already in the price. And the two-thirds is growing at a steady rate. They are not really cheap. Defensives don’t fall 70-80 per cent. So, the nature of the market is such that big falls are unlikely. They correct a bit and interest comes back. At the same time, on the upside, you need more activity to push.

So, where will you place your bets right now?

Private banks continue to be a very good space. There is no stopping them from growing.

The retail book continues to do well across all banks. And there are no delinquencies there. I am also hopeful on consumer discretionary. With lower interest rates, hopefully something will pick up. This festive season is important. If it goes well, there may be some interesting plays in this space. Pharma is not cheap but it is a good value creator. It can still grow 15-20 per cent.In energy, we are still bullish on oil marketing companies, such as HPCL and BPCL. Within industrial, we own some of the large names, but we are yet to see a turn there. Road construction is a good area. But it is still a very bottom up market.

The DSPBR Equity and Top 100 funds have been average performers….

Yes, Equity and Top 100 have struggled. We had more of a value bias in those funds and that did not work as the markets went in momentum mode. But we have tried to adjust and make corrections and hope that the funds will come back. We have had changes in fund management as well. For instance, the manager of Focus 25, one of our better performing funds, also manages the Top 100 now.

How will Fed rate hikes being put on hold impact foreign fund flows into India?

Fed rates don’t look like they are going up till at least the middle of next year now. So, the deferment of rate hikes has created a risk again in the system. But as regards foreign funds, it’s going to be tough for India. There are global funds, emerging market funds, sovereign funds and India dedicated funds. India dedicated funds are not receiving money.

Emerging market funds are all sitting overweight on India and there is no scope to increase weight. People are getting fed up of emerging market funds because in other markets, they have been losing money.

In sovereign funds, some have been selling also because they have been mostly oil dependent. That leaves global funds.

They are frankly obsessed about developed markets and India is a small fish in the pond.

So, it is not an easy call actually as to where the FII interest will come from in equities.

Of course, out of 21 years of FII flow so far, only two years have been negative. Going by the track record, it looks fine. But right now, we are struggling to see where the money will come from.

Related Topics
comment COMMENT NOW