The Union cabinet cleared the Land Acquisition bill and formed a cabinet committee for the long-pending infrastructure projects in a meeting yesterday. Dhiraj Sachdev of HSBC Global Asset Management spoke to CNBC-TV18 regarding the policy decisions taken by the government and how it will affect the market.
Q: Are you playing the extremely compressed stories, something like the high beta space, spaces like media that have underperformed for nearly five years now, or have you gone with the relative safety of pockets like pharmaceuticals?
A: It is a diversified basket because the universe of midcaps runs into few hundreds to few thousand companies. We have companies raging from auto ancillary to select private and public sector banks. Selectively IT, real estate companies, some of the media companies as well, agrochemicals, consumer durable names. So the basket is pretty wide as far as sectoral allocation towards midcaps is concerned.
Q: You have been including public sector banks which seem to have woken up after a long period of underperformance?
A: It has been a fairly mixed response from public sector banks; some of them have done well where the non-performing asset (NPA) levels are controlled and some of them obviously disappointed on the restructuring book and higher NPA level. The fact of the matter is if you see the periods of last 10-15 years, banks have been in the growth business and India is a capital starved economy, so there are periods when incremental NPA tends to move up and the market tends to overreact and over discount this phase of public sector banks. At valuations of 0.6 to 0.7 times, on the adjusted book basis plus a dividend yield of close to 4-5 percent, these banks are attractively priced.
As the economy tends to improve and the higher provisioning norms behind, we believe the results going forward from public sector banks could be better which the markets will get excited about plus the decline in interest rate cycle will also help them. So we are selectively picking and buying public sector banks as well.
Q: Do you think 2013 will be the year which marks the return of the Indian retail investor into equities or do you think they will continue to give it the pass?
A: We hope that they return, this time close to USD 20 billion. Foreign institutional investors (FIIs) have taken lead in this market rally. We believe and we hope as the macro tides reverse, the retail investors come back. Unfortunately they should not be late in the curve as has been in the past but we do hope that they return.
Q: It’s been a pretty strong year in terms of return so far from the equity market. What kind of returns do you think one could confidently point to in 2013, in that 15-20 percent range or something better?
A: The least we can expect is 15-20 percent and some of the midcaps could do even better.
Q: What do you expect to hear or see in terms of flows as strong as what the last two months have been?
A: We are seeing flows despite rupee depreciating by close to 20 percent. So FIIs are not worried about the currency part and pumping from their side continues even at 54-55 levels. So if there are signs of rupee appreciation, we might see further acceleration from the FIIs who are waiting in the sidelines because of the currency risk.
We might expect that the flows from the FIIs should sustain given the fact that now the policy decisions are also positive and in place.
Q: How are you approaching the very expensive FMCG basket that’s been correcting sharply these last few days?
A: We have not seen any revival during the festive season or seasonal sales, as far as consumer business is concerned. Just to reiterate, we believe that the valuations relative to other sectors be it auto, auto ancillary, banks, cement, selective infrastructure capital goods plays, is pretty expensive. So we are underweight on FMCG and relatively overweight on the other side of the market or other segments.
Q: Do you think the current pessimism in IT is overdone or do you think it’s warranted given the fundamentals?
A: IT has been an overweight across funds. Given the fact that despite rupee weakness, the demand side equation is not turning in favour, plus the spate of the guidance downgrades which is happening from bellwether stocks is not helping the sector. Also the other sectors are coming back on the forefronts. So we believe that the relative switch from IT to other sectors though temporary will continue to happen.
READ MORE ON Union cabinet, Land Acquisition bill, Dhiraj Sachdev, fertilizer , infrastructure , FDI, RBI , IT, private and public sector banks, midcaps, non-performing asset (NPA), Foreign institutional investors (FIIs), retail investors , FMCG
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