Given the current state, the market's frame of mind is shifting from quality to growth and cyclical recovery in earnings led growth is coming back, says Ganeshram Jayaraman of Spark Capital Advisors.
Discussing the company’s portfolio strategy and macro outlook on CNBC-TV18, he said that Spark Capital has an overweight stance on infrastructure/industrials, automobiles and discretionary consumption.
He advises avoiding consumer staples and private capex based companies and is underweight on IT and pharma sector.
Commenting on rising oil prices, he said that it is not a matter of worry till crude prices cross USD 60 per barrel.
Jayaraman further expects a 25 basis points rate cut going forward.
Below is the transcript of Ganeshram Jayaraman's interview with CNBC-TV18's Anuj Singhal and Sonia Shenoy.
Anuj: You are overweight on select private sector banks. We see bipolar moves in private sector banks, the economy facing stocks haven’t done well, retail stocks have done phenomenally well. What are your preferred picks in this particular sector?
A: The way we look at private sector banks is there are some banks which are more private sector capital expenditure centric. So, we need to see balance sheets getting repaired, we need to see private capex being planned for some of them to start being more favourites.
So, till the time we see capacity utilisation across the board improve or balance sheets getting repaired, we don't see capacity expansion likely.
Our preference continues to be more retail centric or working capital funding kind of banks or more SME financials rather than project finance centric banks. So, that makes us more selective on private sector.
Sonia: Apart from financials where else do you have your eye on, the consumption piece is picking up quite well, is that a space that you are looking at as well?
A: The big change that we have made to our model portfolio is we have upped the weights on industrials. The broader thought process there is for many years now, for close to 5 years now market has paid over paid, gone overboard on paying for consumption especially staples.
We see earnings cyclical recovery and earnings led growth coming back. So, our view is there is a pocket which is more the either industrial consumables or government spend dependant proxies which will benefit within the infrastructure / industrials pack. So, we have upped the weights there.
Within consumption we have stayed away from staples for a while now, what we call as more cyclical consumption which is pickup in autos or footwear, apparels , holidaying or for that matter more durable. So, our preference of consumption has changed materially.
It is more discretionary in nature. The key thought where we are betting on is the mindset of the market is shifting from quality to growth. That to us is something that we want to start, we may be a quarter or two early but we believe that this is something that we will look for where the market is kind of getting fatigued about the valuations and the fall in earnings growth in the so called better quality. So, there is a shift towards, mindset moving towards growth viz-a-viz quality.
Anuj: So, that would mean that may be it is time to look at some cheaper stocks compared to the expensive ones?
A: Exactly. So, viz-a-viz 40 PE, 5 percent growth, we are likely to see 20 PE 15 percent growth. So, shift in my biases, money flow or preferences of investors. We still find IT, pharma and the staples pack heavily owned. IT, pharma by the domestic funds and staples by the FIIs, this shift is beginning to happen.
Anuj: Just a word on autos because that is also such a large space and some of them have seen again bipolar moves. So, what do you like, do you like two wheelers, four wheelers, commercial vehicles or is it more bottom up?
A: Actually across the board, two wheelers, four wheelers. I wish we had more, even on tractor we could have possibly been more positive. However it is more of two wheeler, four wheeler biases today.
Commercial vehicle has played out a lot, nothing to say that it is not there anymore but clearly across the board auto is something where we have been very positive on and it has played out pretty well for us.
Sonia: Footwear is the other place that you are positive on but if you look at a stock like Bata for example, in the last 12 months it has given you no returns at all, it has in fact been very volatile. It has gone from Rs 600 to Rs 400 and back to Rs 500 odd now, why is that? Why have some of these companies stopped reaping the same kind of benefits that they used to two years back?
A: The thought process is we will see lesser discounts likely to come from the e-commerce companies. Today if you breakdown the e-commerce company sales, after mobiles the second category where they are selling more is footwear and that is because of a lot of discounting options being thrown at the customers. So, with the falling equity available we clearly see shift in customer preference from online back to offline. So, clearly the names that you threw are clearly going to benefit out of this whole change.
Anuj: What about overall market, how are you positioned on the overall India theme and do you expect markets to make a move towards its highs any point in this year or early next year?
A: We don't take a Nifty view or Sensex view typically. Having said that this we see a very polarised market. If you see the latest quarter earnings which went past, about 50 percent of our coverage universe saw an upgrade and 50 percent saw downgrade. So, we are going to see the preferences change but there are going to be material losers as well and they are also large weights on the index. So, putting the two together we can't see material index upside but it is going to be more sector specific preferences which will drive it.
Sonia: Which are the sectors that you would stay away from entirely? You spoke in brief about the IT space and the pharma space as well.
A: IT and pharma we are heavily underweight. Staples we have very little left in the portfolio. We are also little wary of the real estate dependent proxies or for that matter even the private sector capex centric banks which we are little more wary of. So, these are the broader sectors that we are little more underweight on. Oil and gas is also something that we are more wary of.