Moneycontrol
Aug 09, 2017 10:49 AM IST | Source: CNBC-TV18

See 6-7% correction in markets but liquidity to remain strong: Birla Sun Life AMC

Patil expects liquidity to remain strong, especially domestic money that is not expected to be abating as retail flow is coming, pension fund money is also flowing, so Rs 10,000 crore looks like will be sustainable on monthly basis

The market has seen some moderation, which was expected after a sharp rally in the year so far but deep correction is unlikely, that is the word coming from Mahesh Patil, the Co-Chief Investment Officer of Birla Sun Life AMC on Wednesday.

Equity benchmarks already corrected around 2 percent from its record highs touched last week, which was on expected lines. Anyway, the market always gives investors a chance to book some profits after some period of time. In the previous session, the Nifty fell below 10,000-mark for the first time in two weeks, especially after capital market regulator SEBI on Monday released a list of 331 shell companies identified by Corporate Affairs Ministry.

The market shot up more than 20 percent year-to-date and the maximum correction seen in 2017 was around 2.5 percent that was a healthy correction.

The current correction was also on expected lines as earnings revival has not seen so far, even Q1 earnings were a mixed bag, Patil said in an interview to CNBC-TV18.

He further said, "The current correction does not mean that we are at mouth-watering level."

He expects a new supply of USD 4-5 billion through a large issuance to hit the market soon.

"We at Birla Sun Life have been cautious on the market and are not in a hurry to buy stocks. The recent rally surprised us as valuations in near term will remain high," he said.

Hence, he expects some correction in the near-to-short term, which could be 6-7 percent (that can be called healthy correction) and not beyond that, but he is positive on market with long-term perspective.

He wants to see some earnings visibility before deploying cash in the market. He is a bit defensive; therefore, he has increased exposure to consumer staples due to steady earnings.

According to him, the medium-term outlook on emerging markets started to improve, valuations look better due to stability in commodity prices, which is also helping India but India does not look attractive due to high valuations.

Patil said he expects liquidity to remain strong, especially domestic money that is not abating as the retail flow is coming, pension fund money is also flowing in, so Rs 10,000 crore inflow looks like will be sustainable on monthly basis.

FIIs flows are largely driven by global factors. So, if the market sees a correction, it should be because of global factors.

Stocks to watch

Birla Sun Life AMC is underweight on pharma and IT stocks. The firm was very late to reduce weightage in pharma stocks, he said.

He expects more downside in healthcare stocks due to pricing pressure in the US. "We will look at pharma stocks only when there is earnings stability that will take 1-2 quarters," he said.

In IT space, he is not seeing any meaningful surprises. "There is 7-9 percent growth in topline and margin progress is not good so far. So, the upside is capped but we don't see much downside in IT stocks," he explained.

Mahesh Patil is overweight on auto stocks, especially 4-wheeler counters — Maruti Suzuki, Tata Motors, etc.

He is also a bit positive on 2-wheeler space as that can bounce back soon and some signs of rebound already seen in July sales data. Overall, he is positive on consumer discretionary space.

In financial space, private banks still look good as they are becoming more aggressive, he feels. Overall, credit growth is muted but there is an opportunity for private banks to grab more market share, he believes.

"65 percent market share is still with PSU banks, hence, there is enough opportunity for private banks," Patil said.
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