Investors are now investing in stocks with long-term growth opportunities, but there is nervousness over top line growth with upcoming election in the US, says Lalit Nambiar of UTI MF.
Speaking to CNBC-TV18, Nambiar said India continues to stand out amongst the Asian pack on back of strong growth momentum. While some outflows on the debt side have happened, people are confident that the Reserve Bank of India can manage volatility.
Amongst sectors, UTI MF is bullish on automobile and auto ancillaries, which have multiple tailwinds like Pay Commission on their side.
In banks, the stressed assets situation is improving on the back of large deals that are happening. The central bank, too, has an accommodative stance. Rather than size, direction of the reforms should be looked at, Nambiar said.
Infrastructure and construction are other sectors to look at.
Below is the verbatim transcript of Lalit Nambiar’s interview to Prashant Nair and Ekta Batra on CNBC-TV18.
Prashant: You have been cautious for a while, you are still cautious, you are saying US elections are a big risk, markets are going to be a little choppy till that point. I was just looking at -- last week was a holiday, the data from AMFI, the association of mutual funds releases the inflow, outflow number every month and the data came out last week. Rs 3,700 crore odd is what equity mutual funds took in, in the month of September. Flows still remain pretty good, they are obviously lower than the previous month, the month of August but it is still a good number. I just want to ask you even as you continue to get money in and your view is slightly cautious, you like to hold back, how are you kind of doing the investing with the money that you are getting or your are just increasing cash levels because usually mutual funds don’t increase cash beyond a certain level?
A: Most people have been deploying in stocks they believe have long-term strong fundamentals. So, that is not really a problem but at the broad market, at the topline level, there is a little bit of nervousness. There are global investors who are looking at Asia as a pack as oppose to India standalone and that is the real factor to look at. India by itself continues to stand out; continues to stand out for its economic fundamentals.
It is possibly best placed to grow in the space but having said that it can’t be isolated from the rest of the pack. So, to that extent, mutual funds will invest in companies where they believe the fundamentals are sound from a two to three year perspective and these things are part of the -- one has to take it in one’s stride.
Ekta: Are you watching the FCNR(B) redemptions very closely, I mean any sort of impact that it could have in terms of the rupee as well as maybe debt outflows from the foreign institutional investor (FIIs) table, anything of that concern which could weigh on equities as well according to you?
A: We understand there has been some outflow on the debt side but overall people have kept un-hedged positions to some extent. I think largely people are confident that the Reserve Bank of India (RBI) will be able to manage the volatility. I think some amount of the money is already possibly gone out so to that extent I don’t think it is a big factor of worry but basically once we have passed that post, we will all probably breathe a little easier.
Prashant: To get to sectors, auto companies have been claiming fantastic all time high monthly numbers, right. Maruti Suzuki 1.6 lakhs a month, Hero 6.50 lakhs odd there are other companies as well. There is of course the festive impact as well September to November can I count for 30-35 percent of the overall volumes in a year. So that given even adjusted for that they seem to either doing very well or is that how you would look at it? If that is the view then what are the implications for original equipment manufacturer (OEMs) like Maruti Suzuki or even auto ancillaries?
A: Without getting into stock specifics, if you look at the buoyancy in the demand there as you mentioned partly seasonal, partly pent-up demand you have had a couple of years where things went so hunky-dory for rural India. Even for urban India this time around you have the tailwind of the pay commission.
So, confluence of positive factors are there and I think people have realised that sometime back. That is the reason auto as a space has been doing well at least on the bourses for some time.
On the ancillary front of course that is a function of both domestic demand as well as external exports. The space continues to be one of the few sectors which have a pretty reasonably strong tailwinds to that extent it will be a place to stay invested.
Ekta: Would you be buying banks now more aggressively after all of the monetisation that we have seen deals take place by companies that are debt laden latest being SR?
A: At the margin definitely thinks look like they are changing colour in terms of non-performing assets (NPA) situation. In that large deals are being announced debt is getting freed up, NPAs are getting sorted out to some extent.
Large banks, corporate banks which had possibly got stuck in those even the Reserve Bank of India (RBI’s) own policy, the latest policy seems to have some language which points to a more accommodative stance on the NPA front and their stance and how they would go about resolving that. I think those are all positive signs, so these things happen little bit at a time. I think you need to look at direction rather than the size of the step taken.
Prashant: Without going into specific stocks but broadly talking about ICICI Bank, you said directionally it is the right thing, it is a right move. ICICI specifically is extremely under-owned, valuations, one of the cheapest private banks and this along with couple of other deals which other borrowers have struck like Jaiprakash Group, significantly eases the stress on what are known as watch list loans for ICICI. Do you believe these are great opportunities for funds as well if you can take that directional call?
A: I think funds are already taking these calls. You are seeing people in the margin switching. There are some who have already taken that position. Some who are looking at banks where these issues would get resolved quickly and directionally and the balance sheet clarity is coming through. NPA should get better from here and to that extent that call is already being taken by the market to some extent.
Presumably some of these will also be impacted by FII flow. To that extent people may be sitting on the fence in terms of trying to figure out where that is headed but that is more a technical factor. From a fundamental perspective, I think there is the understanding in the market that things are changing.
Prashant: What are the other top ideas, overweights for you?
A: In terms of sectors, we continue to believe that the economic cycle is on a revival, it may not be at the pace at which the market wants but I think the P/E is definitely showing that the market is looking at this area and I think cement has shown the way.
I think it is a question of time when the other pieces in the puzzle so to speak in terms of economic cycle recovery will start playing through. I think industrials is an area, infrastructure to some extent is an area, construction maybe another area so you have this crowding in possibly from the government projects especially in the road sector which could be a big driver. I think those are places which will be very interesting.
Ekta: What about midcap IT, how would you approach it? A case in point that stands out to me is Mindtree; that stock is down 2 percent today. We are expecting numbers this week. Second profit warning that we saw in September in the past six months from that particular company which used to be a darling say up till maybe six months ago. Your sense in terms of how you are approaching midcap IT, is it a blanket buy, is a blanket sell or is it stock specific?
A: I think it is stock specific. However, there is a little bit of a disappointment on the news flow coming out of the US especially in terms of BFSI and specific deals which have sort of gone out, exit of a few deals that has impacted companies and that has impacted general confidence in that space. I think that is a wait and watch.