Jan 20, 2017 03:07 PM IST | Source:

ICICI Pru MF sees more rupee depreciation; upbeat on pharma

The rupee is expected to see further depreciation in the coming months against the US dollar, although the depreciation will not be too steep, says Manish Gunwani, Deputy CIO, ICICI Prudential Mutual Fund.

Himadri Buch

The rupee is expected to see further depreciation in the coming months against the US dollar, although the depreciation will not be too steep, says Manish Gunwani, Deputy CIO, ICICI Prudential Mutual Fund.

“There is a slight concern on the currency part because over the last couple of months the US dollar has strengthened against most currencies. As a result, rupee’s REER (Real Effective Exchange Rate) is almost at a decade high, which on a fundamentally basis indicates that the Indian currency is a bit overvalued,” Gunwani tells Moneycontrol.

However, he does not expect a steep depreciation as India’s macro-economic indicators such as current account deficit, fiscal deficit and inflation are stable.

Today, the Indian unit was at 68.32 against a dollar. The rupee had plunged to an all-time low of 68.86 per dollar on November 24.

A badminton and chess enthusiast, Gunwani says if rupee depreciates it will erase some of the appreciation of the real effective exchange rate (REER) and help maintain India's export competitiveness against other emerging market peers.

As a result, Gunwani believes that India remains an attractive destination for foreign institutional investors for investments. “India is an attractive country for foreign investors as the growth witnessed here is unlike any other parts of world. So from that perspective, India remains an attractive destination. However, we need to be competitive in terms of exports and currency,” Gunwani said, who manages assets under management of around Rs 30,500 crore across various schemes.

On market turbulence in the last few weeks, Gunwani, ascribed in parts, to US election results, demonetisation, the consequent consumption impact, the currency volatility and its impact on foreign currency loans.

He prefers to call the government’s move of currency ban as 'remonetisation rather than demonetisaton,’ adding that in the short-term economic challenge will be to deal with remonetisation and making sure that there is enough currency in circulation.

In the short-term, he expects consumer demand to be affected and among sectors; he sees construction sector being affected for near-term but the impact on real estate is expected to last for long.

“Urban real estate where the ticket size is below Rs 75 and Rs 50 lakhs is likely to be least affected and hence it should see a pick-up but high end, premium flats would take time to rebound,”  Gunwani said, who is currently reading a book called Homo Deus: A Brief History of Tomorrow by Yuval Noah Harari.

He also envisages that demonetisation will lead to steep corporate earning cuts for FY17; however, earnings should pick up in FY18 adding that consumer discretionary space will rebound the fastest.

Gunwani further adds that demonetisation that has been announced in the second half of the year, which is a higher activity half of the year will dent earnings of sectors like cement, domestic consumption and automobiles.

“For cement companies monsoon season is generally a lean period in terms of contribution to sales and profit but demonetisation has come in November 2016; so the effect of this move is likely to be visible from November 2016 to February, which was the most active time for cement companies. Therefore, a steep earnings cut is likely,” says concerned Gunwani.

In terms of market rally, Gunwani, who has more than 20 years of experience in the financial industry, believes interest rates will be the biggest trigger for the rally in Indian indices.

“Macro stability will lead to interest rates coming down and to my mind interest rates will be the biggest trigger to support the market,” he said.

ICICI Prudential Mutual Fund is upbeat on largely private banks, select PSU banks, 4-wheeler automobile companies and pharmaceuticals.

On the rationale behind being overweight on private banks, Gunwani says, private banks are generally considered stronger on certain aspects like technology, HR and customer services as compared to public sector banks. He also finds the pharmaceutical sector 'quite attractive from valuation and growth perspective.'

Recently, ICICI Prudential Mutual Fund's Balanced Advantage Fund that is managed by Gunwani achieved an asset base of Rs 16,252 crore as of October-end making it India's largest fund in the equity space. 

“The equity levels in this fund can vary between 30-80 percent, with daily rebalancing. The philosophy here is to buy low and sell high. So with rise in equity market we reduce our equity exposure and vice versa. Dynamic balancing between debt and equity, has definitely helped us to generate good risk adjusted returns,” said Gunwani.

In the year ended November 30, the scheme has delivered  8.49 percent average returns.

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