See minimum 7% GDP growth: Quantum AMC

IV Subramanium, Director, Quantum AMC said they are bottom-up stock pickers and wherever we find value they go ahead and buy it. “We have many sectors and stocks which look very attractive if you have a longer-term horizon, which we continue to have. The Indian GDP growth, if not at 9%, can definitely grow at 6% to 7%, which is a lot better than global averages.”

Excerpts from CNBC-TV18’s exclusive interview with IV Subramanium:

Q: How have you looked at the inflation numbers coming in at 11.4%? The week-on-week number still has an ugly 0.4% rise. How would you position yourself in terms of earnings growth and PE from hereon?

A: It does look worrisome when you look at the immediate numbers which have been announced. But we would look for the policies which are in place to bring it under control over the next few weeks or months.

From the way the central bank has gone about increasing the interest rates, it should help bring down some of the impact of the high inflation which we are seeing currently.

Additionally, by the end of the year, you should see some supply bottle-necks which we have in certain industries going away. That should also help in keeping it under control. While the current environment is very challenging, I continue to believe that they can be brought under control. Therefore, it will not be as bad as one envisages by just extrapolating the weekly numbers over the next few weeks.

In terms of strategy, we are very bottom-up stock pickers. So, wherever we find value we will go ahead and buy it and the choice of stocks has now increased. We have many sectors and stocks which look very attractive if you have a longer-term horizon, which we continue to have. We continue to believe that the Indian GDP growth, if not at 9%, can definitely grow at 6% to 7% which definitely is a lot better than global averages.

Q: If you are factoring into 6.5% of GDP growth in the current or the next year, would you not envisage people pulling back their expansion and after all a lot expansions were on the assumption of at least 7% plus of growth?

A: In certain segments, you will find the pullback happening. One has to be choosy in terms of which are the segments that are being pulled back. But 6.5% to 7% of GDP growth would still require a lot of capital investments. At this point in time, it looks like those capital investments are going through despite the increase in interest rates. We have not seen any major pullback in large Capex plans, at least by some of the bigger corporates.

As long as that continues and if their margins are reasonable, despite all the increases in raw material wages, you still find that their margins are reasonably high for them to manage their cash flow over the next year or so. While not denying the fact that the earnings growth will slow down, if you have factored that in you are likely to be less disappointed unlike the short-term momentum investors.

Q: While value may be supportive at this point in time, what are you doing with the portfolio for the cash levels that you are sitting on at this juncture? As a percentage of your total holding, how have you dealt with the interest rate sensitives, particularly the banking lot? What is their current weightage in your portfolio?

A: I can comment on what is available in the fact sheet as of last month. You notice that cash levels are extremely low for Quantum AMC. It is more or less fully-invested largely because the valuations across the segments are now attractive. They did make a few changes in the portfolio in the course of the last few months.

In terms of interest rate sensitives, we have not consciously reduced it, just by taking a view on the interest rates. But if the valuations looked attractive in those segments, we have increased the investments in that or just held on to the current positions.

But since certain segments like capital goods have declined very sharply in the last few months; you did find the Quantum portfolio increasing its exposure in these segments in the course of last month.

Q: Considering the clouds of the horizon in terms of inflation, interest rates and possibly even some political confusion, what kind of lows are you seeing from here? What kind of lows do you see in 2008?

A: From the Sensex point of view, I have no view where the bottom is. There is value but the stock prices can decline. So, you have to have the conviction to go ahead and invest in something now. If you are fortunate to have more cash and if the market declines, then go ahead and invest more in the future. But to search for the bottom is not very predictable and therefore I would not risk doing that. 

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