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Bullish on pharma, tech: Mirae Asset Global

Published on Wed, Nov 28, 2007 at 18:57 | Source : Moneycontrol.com

Updated at Wed, Nov 28, 2007 at 21:31

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Bullish on pharma, tech: Mirae Asset Global

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Deepesh Pandey , Deputy Chief Investment Officer, Mirae Asset Global Investment Management said that markets may see a patch of consolidation. He added that markets are driven by risk-aversion and flows have slowed down, which may lead to a phase of consolidation.

Pandey added that India's domestic growth story provides it a stronger fundamental versus other regional markets, which are much more dependent on US economic outlook and global economic outlook.

Excerpts from CNBC-TV18's exclusive interview with Deepesh pandey:

Q: The markets have been looking a bit volatile and tending towards weakness. Do you expect this to be just a patch of consolidation or is there any weakening bias as such?

A: We should see a patch of consolidation. Globally, the environment is not really looking good right now, in terms of sentiment towards equities. We have seen correction in the US. And newsflow, especially coming out from the US and Europe, have been particularly negative and should remain so for the next few days. We are also seeing a higher degree of risk aversion, as reflected in higher bond spreads and falling commodity prices globally.

So, driven by this kind of risk aversion and the fact that flows have surely slowed down, we see a phase of consolidation in Indian markets also for some time.

Q: India has so far outperformed most of its global peers. Do you see some more of a catch-up here or is India maintaining its little bit of a headroom above some of the other Asian markets?

A: India's a domestic growth story is very strong, unlike many of the other regional markets in Asia, which are heavily dependent on exports to the US and other developed markets.

India's domestic growth story provides it a much stronger fundamental versus other regional markets, which are much more dependent on US economic outlook and global economic outlook. So, that is one strong factor, which will support India. But having said that, we have seen some degree of outperformance in the last one month. That should continue, but it may not be at the same pace as what we have seen in the last few days.

Q: What's the sense you get on the flows situation right now? We have seen a bit of outflow quite a bit of outflow from the global investors, do you see that continuing through till the end of this year now from Asian markets generally and India specifically?

A: Its possible, its not difficult to rule out that possibility because one we have seen very huge flows in Asian emerging markets and more so in India and therefore there could be some amount of profit booking in India also in short-term considering that investors are seeing very healthy returns. So its quite likely that there could be some amount of outflows which is what we have seen in last one-month but we must remember that India has seen almost USD 16 billion worth of inflows. So USD 1 or 2 billion going out should not be such a big concern considering its coming at the year-end and typically next financial year as a start you will see fresh flows coming to India. While there could be short-term outflows I don't think it reflects on India's fundamentals or outlook on the stock market. It's more a profit booking, which could be possibly done in India.

Q: Do you see significant downside in this consolidation phase, because the market has been broadly in the 18,000-20,000 zone? Do you think we will hold out in that zone, by the time this year is out, or do you expect to see a deeper cut?

A: Looking at the way the market has moved, especially over the last 2-3 months, it has been a very polarised kind of movement. One group of stocks, led by sectors in energy and industrials and utilities have done extremely well, whereas you have sectors like consumer, automobile and pharma , which have really lagged in this rally. So, in that sense, even if one talks about a correction, one is going to see a correction in some of these sectors that have run-up very sharply, whereas the other section of sectors like automobile or consumer, which have not really participated in this rally should not see a significant correction.

So, that limits the overall downside for the market, because you will have correction in this set of sectors being balanced by some degree of outperformance by the other set of sectors.

Possibly, in the worst-case scenario, you could have maybe a 5-10% correction. That is where you will again see value emerging in many of the sectors and stocks. In any case, the sectors that have really underperformed still offer a lot of value and some of the positive triggers are emerging in those sectors.

Q: Do these stocks need to correct more in the entire power space?

A: Power stocks, especially the utility stocks, seem to be quite expensive. Investors are willing to build in all the possible upsides for the power projects, which will get completed over the next 3-4 years.

Any kind of announcement on new project additions is immediately getting discounted, which is getting a bit overdone. Therefore, some of the stocks have become very expensive, in terms of valuations parameters. One should see more corrections going ahead in some of the utility stocks, in particular, because investors are not discounting any kind of execution risk and the past problems, which the sector has had.

In terms of execution and payment problems, I expect more correction in this sector, going ahead.

Q: Globally do you expect commodities to fall more?

A: It is quite logical to expect that if there are serious concerns about US economic growth outlook and even Europe, commodities will undergo some kind of correction. Demand growth for these commodities is quite linked to the demand growth from developed economies. So, driven by the correction in underlying commodities, one could see weakness in these stocks going ahead, especially the base metals. So, one should see some weakness in these stocks continuing, going ahead.

Q: From a stock market perspective, how are you playing this? Is it time to look at some of the rupee sensitives once again? For instance, are you recalibrating your portfolio slightly in favour of IT, textiles, pharmaceuticals or not quite yet?

A: What we are doing in terms of portfolio is very stock specific. IT stocks do look very attractive, especially some of the largecap companies. They are quoting at valuations similar to the valuations in 2003 when earnings growth was much lesser. In a way, IT stocks are discounting almost a worse case scenario. The problem with the sector will still remain as negative news flow from US and Europe emanates in terms of economic outlook.

That will keep on impacting these stocks. If one has a 12-24 months kind of horizon, it is a good time to gradually accumulate some of the larger companies in this sector. There valuations, fundamentals, and the offshoring story make it a much stronger case versus just a pure view on the rupee-dollar, which is always very difficult to take.

Beyond IT, on a sectoral basis, some of the pharma names look relatively good in terms of valuations, where there is a strong underlying fundamental story. This has more to do with individual stocks and the sectoral outlook, rather than any kind of view on the rupee, which in any case should be appreciating over medium-term.