Power sector a safe bet: ABN Amro Asset Mgmt

Q: What is the mood amongst the capital goods? Do you think there is a little bit of that getting cleaned out of domestic or foreign portfolios?

A: Yes, if you look at the sharp fall from early January, most of the capital goods have given almost 30-35% gains. There needs to be investment and infrastructure-spend in the economy. One should look at the capital goods space selectively, in terms of where one should start taking bets, in case one is even betting for a late recovery in the second half of the year. 

Q: Have you made any changes in exposure to technology because of what is happening with the currency?

A: One doesn’t take a call on the sector just because of currency movements. Although, the 5% depreciation in the rupee during last month was pretty sharp, it doesn’t mean that these gains would ultimately translate into bottomline numbers or earnings estimates for FY09.

By and large, one has to factor the kind of hedging policies adopted by various companies. In terms of technology as a space, it looks pretty positive for the simple reason that volume growth would tend to flow in. At least 12-15% is something that one should be fairly comfortable with.

Q: Do you have any specific call on commodities like fertilizer or sugar?

A: The entire agricultural-commodity space including a soft and hard commodities looks good to us because there is not too much of land available to increase the production rapidly. So, the supply constraints will take time to ease out themselves.

At the same time, given the fact that population growth in the world has been good and India and China is where most of the demand is coming from, any company that is making efficient use of their resources and generating a reasonable return on capital employed, would be a good investment bet because the demand growth from here on will be pretty secular.

Q: What is the call in the near-term for the market? Would you be looking at parking more money right now or wait out a bit?

A: One should watch out for any global factor, which might suddenly increase the risk aversion to the emerging markets and lead to some sort of pullback being hit upon. Otherwise, the earnings seems pretty much on track. I don’t see too much of a concern on the risk/reward that the market offers at this point.

Q: Would you avoid banks and rate sensitives?

A:  The call is what timeframe one is looking at. If one is willing to take a 1-1.5 year kind of a view, this is a sector below the book in most cases. So, one should be looking at taking bets because the asset quality has not gone that bad for one to take a total negative stance and sort of exit the sector.

Disclaimer:

It is safe to assume that my clients and I may have an interest in the stocks/sectors discussed.