In terms of portfolio allocation for 2015, Lalit Nambiar of UTI MF says the focus would shift away from early cyclicals to mid-cyclicals as more and more government policies come to fore and execution happens.
The Union Budget next month could give a road map for medium-term fiscal consolidation, which is likely to be better than expected according to RBI governor and that maybe driving market optimism, says Lalit Nambiar, Senior Vice President & Fund Manager (Equities), Head – Research, UTI Mutual Fund in an interview to CNBC-TV18.
Speaking of sector prefernce, the house is bullish on banks, financials, cement because they would lead this cyclical recovery. He also likes IT and Pharma. However, he is bearish on metals and would be cautious with high beta names.
In terms of portfolio allocation for 2015, he says the focus would shift away from early cyclicals to mid-cyclicals as more and more government policies come to fore and execution happens.
However, with a slowdown seen in the rural economy he says avoid stocks that have heavy rural exposure.
On the currency front he says, rupee in fact is symptom of the fact that India is seen as a place where investors are going to stay put rather than rupee being a factor for them to come in.
Below is the transcript of Lalit Nambiar’s interview with Ekta Batra & Anuj Singhal on CNBC-TV18.
Anuj: We have seen a big rally post the rate cut from Reserve Bank of India (RBI). Do you think that is a trigger enough or is the market on moving on to some pre-Budget hopes? Would you classify this as a bit for pre-Budget rally now and do you think the market can gain further from hereon?
A: The rate cut was more or less in terms of timing it may not have been expected but it was definitely expected by the market. It was bit earlier than expected but that aside there is global buoyancy today. So, there is a lot of hope around India.
India and US seems to be one of those few places where there is growth and that is the optimism we see in foreign institutional investor (FII) flows as well as domestic investors sentiments.
Rather than something specific coming out of the Budget there is a feeling that the proposals would probably, put down meaningful road for a medium-term fiscal consolidation. As RBI governor said possibly the quality of that fiscal consolidation would be better than what we have seen in the past in India and that is probably what is driving optimism around the markets.
Ekta: What would your portfolio allocation be now? Would you change it all considering the optimism seems to be back in the markets at this point in time hence may be push up your exposure to high beta infrastructure or metal stocks and reduce it to the fast-moving consumer goods (FMCG) space say for example the Hindustan Unilever (HULs) of the world?
A: We would largely go with the banks and cements because we see they were leading the cycle in the cyclical recovery. We will continue with IT and pharma because they have a reasonably good exposure to the US, which is the other market where we think there is growth and that is largely the top down focus we have.
Metals are a very difficult call given their global connectivity and does not look like things are looking very great in places like China and Europe, even though the numbers today from China came in quite positive. That is a place we would probably still stay away from. While we would want to choose, we would won’t to be very careful of the kind of high beta you would want to choose. Early cyclicals would be better than possibly later or mid cyclicals.
Anuj: What about auto stocks or may be even other domestic stocks like cement. How would you trade them or rather how would you position yourself in some of these names from investment point of view?
A: In cement definitely there is still a lot of hope - that the demand-supply gap is something which we will be positive at least for the stocks and the companies there, the price level too is going to be good for the next two years in terms of incremental capacities coming up. So overall cement continues to look good that is broadly where we would like to put our money in terms of the infrastructure story.
Ekta: Your opinion on non-banking financial companies (NBFCs) because what we have noticed at least from the earnings release till now is that housing finance companies have done well. They have maintained asset quality but there is the rural focus which is now coming of in the likes of Mahindra and Mahindra Financial Services (MMFS) which saw their asset quality quite pressured. Would you differentiate between NBFCs and may be increase exposure to housing finance companies?
A: There is a slow down in rural India that is being seen in some pockets especially in loan against property.
As far as housing finance plain vanilla is concerned, I do not think there is really a concern there especially in the smaller ticket areas because that is the important aspect of house owners (I should say finances he would probably want to keep his house safe). In terms of safety of the safety profile of the business there is no issue. So within the NBFCs space people who would be lending for housing smaller ticket were sensible and prudent lenders. I do not think there should be an issue and we continue to be quite positive about them.
Anuj: In terms of your pecking order what sector would you be most bullish on at this point in time and what sector would you be most bearish on?
A: We continue to be bullish on banking and finance space and probably be a little bearish on metals.
Ekta: How much of a rupee movement do you think is determining the optimism that we have seen in the markets? The reason I ask is the resilience or the strength that we have seen for the rupee whereas the other global currency as such as the euro are showing so much of weakness.
A: It is the other way round the rupee is the symptom of the fact that India is seen as a place where investors are not going to go out but come in or at least stay in and that it is symbolic of that rather than the rupee being a factor for investors to come in. Although there would be some arbitrage trades in the bond market for international investors if they are comfortable with the rupee and they could probably pick up some gains on the differential.
Ekta: What would you allocate in terms of your 2015 portfolio as, would their be any sort of changes that you would anticipate going into the later half of the year as well in terms of a portfolio rejig?
A: The focus will hopefully shift a little away from the early cyclical to mid cyclical as more and more government policy comes to the fore. You see execution on the ground, you see corporate India getting a little bit of its animal spirit back. You see policy coming in from the legislature as opposed to ordinances.
That should see more activity on the project front at least announcements and that should see some more money moving from early cyclical to mid cyclical.