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Mar 24, 2017 07:39 PM IST | Source: CNBC-TV18

Continue investing; have a well-diversified portfolio: Sundaram MF

I think well-diversified portfolio would be good performer with a medium-term approach, said S Krishna Kumar of Sundaram Mutual Fund.


The market this week consolidated after reaching record levels last week. Nifty managed to close above 9100 but was down 0.57 percent for the week.

Some of the trends that impacted the market where -consolidation in telecom space, blockbuster IPO listing, rally in PSU banks.  on the last day of the trading week, banks lead the charge on the Dalal Street after Finance Minister yesterday promised to resolve the bad loan issue.

On the last day of the trading week, banks lead the charge on the Dalal Street after Finance Minister yesterday promised to resolve the bad loan issue. Meanwhile, on the first day of the week, it was news of consolidation in telecom sector with Idea-Vodafone announcing merger and on Friday Bharti Airtel acquired Tikona’s 4G spectrum.

D-Mart listed on the bourses with more than 100 percent gains on the first day of its debut. However, pharma stocks like and  were spooked by USFDA again.

To discuss the week gone by, and the way forward for the market, CNBC-TV18 spoke to S Krishna Kumar CIO Equity Sundaram Mutual Fund and Ashwani Gujral of ashwanigujral.com

Kumar believes one should continue being invested and use the time corrections to get into the market and have a well-diversified portfolio for the medium-term.

Companies that manufacture goods and have a global supply chain would be good bets to look at - be it textiles, light engineering, auto components etc, says Kumar.

The fund house basically looks at picking long-term, secular growth stories with a competitive advantage, said Kumar. "We have been adding to sectors on the consumer discretionary side be it consumer durables across white goods and brown goods and also on the branded apparels and retail side," he said.

Urban consumption stories will be a big driver going forward, he added.

Gujral said the market would remain range bound between 9000-9200 give or take 50 points. The Bank Nifty too would range between 20,800 and 21,220. So focus should be on individual stocks like Bank of Baroda among PSU banks, Jet Airways Indiabulls Housing, ITC, HPCL, BPCL and Reliance Industries.

There is no investment case to get into telecom space, said Gujral.

Below is the transcript of the discussion.

Reema: When we last spoke to you, you indicated that it is a buy on dips market and that has worked well. However now we seem to be pausing at these record levels between 9000-9200 mark. What is the advice that you are giving now?

Kumar: In terms of what investors should do at these levels where markets are moving sideways near all-time highs, I think we should be clearly investing our surpluses at this point in time, preparing for the next move in the market. I think consolidation in terms of time is what we do expect here. Into the next quarter you would be running into the earnings season which is very important as we get lot more clarity on the growth of various corporates and sectors. You would also have some progress on the GST front in terms of fixation of slabs and rates for different products. So, all these are quite positive in terms of trigger for the markets.

Given the benign interest rate environment and to a large extent how India has been kind of a standout market given its inherent stability and resilience, I think we should continue to be invested in the market, use the corrections in terms of time to get into the markets. I think well diversified portfolio would be good performer with a medium term approach.

Anuj: One thing which stands out in your portfolios, is that most of them are domestic centered. Do you get a sense that that is the place to be in right now, avoid export stories and focus entirely on the domestic plays?

Kumar: In terms of the exports, there are lot of opportunities still but near-term there is a bit of uncertainty that clouds what one probably could do because if you look at IT services for example clearly there are headwinds even though valuation and cash flows and corporate actions are a clear support. Similarly, if you look at the pharmaceutical space, though there are opportunities, still I think we are yet to understand what the US President is trying to do on the healthcare front which can have several ramifications for Indian corporates, to add to the US FDA problems they have been facing.

If you move on to the manufactured goods, I think that is where we are probably lot more comfortable to take exposure given that we remain the most competitive economies to export into the developed world, be it textiles, be it light engineering or auto components, light equipment, I think we have a fair bit of advantage in terms of technology, in terms of operating processes and costs. So, we would be selectively looking at those opportunities where Indian companies are part of the global supply chain. We do not think that there will be any significant negatives from the US Fed policies for Indian companies.

Second part of the question, in terms of domestic focus, I think very clearly the demonetisation is behind us, the economy has kind of withstood the cash crunch and come back very strong. We are headed into the GST again which is a big reform from a longer term perspective. So, all this what we are seeing and what we will see after GST is going to increase the share of business for the organised players. The unorganised sector is going to lose out or convert to being more organised and fall into the white economy which is broadly very good from economy perspective and from a corporate perspective on the listed space.

So, we believe that there is lot of action that one should look forward to. The earnings basically have been better than expected post remonetisation. We are seeing that numbers across various sectors are definitely holding up. There could be short-term weakness on a monthly basis in terms of metrics we kind of get to see but longer term trends we are definitely seeing improvement. With the banking system getting its wounds healed in the next 6 months, we think the next credit cycle will start from the corporate side.

We have been growing on the retail side all along in the last 2-3 years, now with some of the measures taken by the government and lot of projects kind of getting better visibility, we will see corporate credit start to get better by September-October and that is again something which would have a rub-off effect across the entire economy.

Reema: Okay, Let us hope for that because private capex has been lagging so far. In some of your funds like Select Midcap or Sundaram Smile, you have picked some big winners. Bajaj Finserv or Indraprastha Gas, V-Guard Industries have all been doublers in the last one year. Could you tell us some midcaps which you have recently bought in the last three months or so in the upmove that we have seen or in stocks where you have topped up your holding?

Kumar: While I would refrain from making stock specific comments, the strategy in these products has been to pick long-term, secular growth stories which have strong competitive advantage in the business which will help them sustain long-term growth with stable to better pricing power which will all give very strong operating cash flows which will help companies deliver to all the stakeholders at large.

So, that has been the approach and we have been adding to sectors on the consumer discretionary side be it consumer durables across white goods and brown goods and also on the branded apparels and retail side. Clearly, we believe the urban consumption story has got a lot of legs and over the next decade, this is going to be a big driver for the economy. So, broadly the urban consumer space on the execution side is what we have been adding to in the portfolio.

So also, if you look at the financial space, we do expect that there could be a lot of improvement that can happen on the corporate credit side. So, relatively we have been churning out of the non-banking financial company (NBFC) space which has been a real big performer over the last decade, slightly reallocating exposures to the PSU and the corporate bank space in anticipation of improved growth opportunities and reasonable valuations thereon. That is the change that we have made.

One other broad theme that we think will work across products that we have is the kind of special situations and turnaround that is happening across various segments and sectors in the economy. There are a lot of government reforms which have happened which are helping various sectors on the core side including steel, power, infrastructure, etc. and of course, the PSU banks too.

So, there will be a lot of opportunities as the economy starts speeding and the roadblocks go away. So, there are a lot of opportunities and turnaround is a big theme that one should and one would play across various portfolios, particularly at our fund house too.

Anuj: You recently added Exide Industries and CRISIL to your portfolio. I am tempted to ask what is driving this investment.

Kumar: As we discussed, it is basically a kind of play on the long-term growth story on the batteries side. Clearly, you are seeing that Exide has come back very strongly with all the investments that the company has made to improve productivity and operational costs basically. It has also been able to manage the product mix better over the last couple of years against competition and has been driving distribution harder at this point in time.

On the other side, if you look at rating agencies, with the deepening and the widening of the credit markets and the corporate bond markets in the country which is what the government and the RBI are trying to do, we do see that rating businesses would have long-term growth potential basically and would see improving growth rates. In addition to that, many of these rating companies including the one you asked had a strong investment research business which is also a value driver. So, a high return on equity (ROE) business with long-term growth potential is what we would like to buy which fits our framework in which we invest. It is about secular growth opportunities with sustainable competitive advantages. So, both these companies we talked about will fit in there given the current environment.

Anuj: It has been the kind of week where on one day, it looked like the market is breaking down, one day it looks like market is breaking out and then as you have been saying, do not get excited by any of these, the market is flat. What is the big call now for the Nifty?

Gujral: We should remain range bound. Broadly, 9,000-9,200 give or take 50 points. So, similarly on the Bank Nifty, you will find it range between 20,800 and about 21,200. Overall, individual stocks should continue to perform. This week, the key has been for the last 3-4 weeks in fact, the way this midcap real estate is moving higher, my sense is that you are getting a multi-year bottom here and why it is moving up will be clear on the weeks to come. So that is a big bottom that is being created in a key market sector. So, that is something people should look at.

Reema: What about individual names? Banking stocks did exceedingly well in Friday's trade. They were big outperformers. Anything that you would bet over there at current levels?

Gujral: PSU banks could have some more rally because a lot of short positions were there. They had reached these supports. So possibly, Bank of Baroda can be bought. You are likely to see targets of Rs 185 or thereabouts in the next weeks itself.

Aviation picked up over the week and Jet Airways is now trading above its 200-day moving average. Out there, we could see targets of about Rs 520.

And Indiabulls Housing is an extremely strong stock. Out there we should see targets of Rs 1,010.

Anuj: The two other pockets which were interesting to me. One is oil marketing companies where they are still off their 52-week highs while the market is already there or nearly there. And also, on some of the FMCG names like ITC where we saw some moves. Anything that stands out here?

Gujral: Both these groups are in strong uptrends. Oil marketing has gone through a decent correction and as you can see, even while the market was coming down today, HPCL was moving up so risk reward is extremely favourable and similarly, on ITC it came off a little bit. But again, today was showing strength going to the close. ITC is looking likely for Rs 315-320. Similarly both HPCL and BPCL look like they are in for an 8-10 percent rally.

Reema: Idea Cellular cracked nearly 16 percent this week and now very close to its 200-day moving average. At current levels, any trade that you would recommend?

Gujral: Chances are it will break its 200-day moving average because the way it has fallen, there is huge amounts of pressure. 200-day moving average can stop it for a bit, but finally, Rs 75-80 should be the zone. A lot of people are asking me whether now it is a good time to get into telecom. Telecom will be like aviation. In good times we will have probably breakeven results, in bad times, probably they will make losses. There is still no investment case here and you get these flashes because of mergers and acquisitions (M&A), etc. But overall, the trends do not suggest major upside.

Anuj: What is the next move on Reliance?

Gujral: Reliance is heading up, there is no question about it. It is holding up the market as well. From Rs 1,260, it came off from Rs 1,320. So, next move should be probably closer to Rs 1,380-1,400. So, fairly strong stock and probably will pull up the market with it. Chances are next week should belong to Reliance.

Disclosure: Reliance Industries owns Network 18 Media, which publishes moneycontrol.com

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