DBS Chola concerned about tech & real-estate

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R Rajagopal, Head of Equities, DBS Chola Mutual Fund said that it is difficult to exactly figure out the bottom.

 

Rajgopal stated that two factors affect the equity markets globally- the fundamentals and global liquidity. According to him, the Q1results were above expectations and India is trading at 17 times FY08.

 

He added that they are positive on the PSU banking space. 

 

Excerpts from CNBC-TV18's exclusive interview with R Rajagopal:

 

Q: Where do you see the bottom?

 

A: It is difficult to say where exactly the bottom lies. We do believe that only two parameters affect any equities market globally. One is the corporate fundamental, endemic to the particular geography and the second one is the local liquidity, which includes both the domestic as well as FII money that comes into any economy.

 

As far as the fundamentals are concerned, the Q1 results have again given a very good confidence in our own economy. Most of the results were above expectations. So, I believe we are currently trading at 17 times FY08, which is quite attractive, because the corporates are still growing 20%.

 

The second parameter of global liquidity is taking its toll today in the market place. Global liquidity is getting affected and we are being globalized to a great extent these days and are also suffering because of that.

 

We may have fallen more than the other global markets today. On a day to day basis, these adjustments will keep on happening, but the midcap have also suffered. That definitely indicates that a couple of speculative position in the market place, by domestic players, would have also got unmoved today adding to the chaos in the market place.

 

Having said that, I would not know when the global chaos would end. Hence, putting a number to the index, as to where it would stop, would be a little meaningless. But definitely by March 2008, you could definitely see substantial improvement from current levels.         

 

Q: What is happening with technology? They have got slammed completely out of shape over the last few days and today has been one of the biggest draggers?

 

A: Probably, there could be some concerns on the BFSI space, where they operate. Because of world leaders having their own liquidity problems, that could be the only reason from the sentimental side, triggering such a fall in the IT sector.

 

But, otherwise, if you look at the rupee depreciation that has happened in the last couple of days and from the time that Infosys gave its guidance; for the large IT companies, it is an opportunistic time for investors to get in.

 

We need to have a few more details, if at all, one needs to think that the sector is going to do well in the near future. Currently, I do not believe so, because we have been having a somewhat neutral stand on the sector. Probably, at these levels, we will reconsider whether increasing exposure to the IT sectors is warranted.

 

Q: What would you buy first for your fund in the market around this 14,000 mark?

 

A: We have already floated our infrastructure fund and we are amidst the road shows there. Definitely, a couple of sectors like capital goods and the power sector stocks have weathered the volatility. These could form very attractive buys for schemes across the portfolio as well. So, definitely we will be looking out for some good bargains and may be eying sectors like the PSU banking space.                 

 

Q: What is the call on some of these real estate stocks, because this is the space that really gets punished on a bad day?

 

A: Real estate, for any portfolio, needs to be added as a flavor to the overall portfolio composition. By nature, they are quite volatile because there is too much of future growth building there in those stocks.

 

So, they are typically traded at very high PE multiples. On days where most of the volatility drags the markets down, they tend to lose their weight and form. Whenever you have seen volatile days like this, IP multiple stocks like media and real estate both fall. They do tumble and also recover the fastest when things seems to stabilize.

 

Typically, these sectors do recover back very fast, after the fall as well. Definitely, it is an opportunity for people who had probably been underweight or not holding positions in sectors like media to be part of it.

 

As portfolio managers, we do believe that we need to take very limited exposure to the extent that we can safely manage the volatility and not only NAV.

 

Q: What explains this kind of a fall in the banking space? Analysts said that we are a great domestic story and banks would be the best domestic place?

 

A: If you look at the fall from the beginning of this month, I would still not totally agree that the banking space has seen too much of a fall. Definitely, they are outperforming the broader indices.

 

It was a day wherein the markets came down after the day's upside. Typically, positions in the F&O segment too would have got unwounded in the banking space, especially because there were huge positions in that sector as a whole. There was interest returning back, not only from fund houses but also from retail investors in that space. 

 

It is very important here that a couple of PSU banking stocks and the FIIs  take huge positions in the F&O segment alone. It is a regulation that they cannot buy it in the cash market.

 

So, obviously when one of the FIIs is willing to book profits in India and to tide over his liquidity crisis elsewhere, that could have triggered the fall in the couple of banking stocks that we have seen today.

 

Q: Over the next one-week, will you move more into the cash or be investing more?

 

A: No, I would not be doing that. Staying in cash at these levels is very risky and in all our schemes we would try to be as close as possible to the overall equity investment limits, rather than try to take this asset call between the stock and cash.  

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