EMs not insulated to sub-prime fallout: SBI MF

Excerpts from Bazaar on CNBC-TV18 Watch the full show » RELATED NEWS IT space likely to remain underperformer Window of volatility remains open: Envision Cap Period of agony over for mkts Nifty BSE | NSE 25/05/12 Are Mutual Funds betting on Nifty?

Sanjay Sinha, CIO of SBI Mutual Fund, said there are fears of a sub-prime issue fallout on other asset classes and emerging markets in particular. He feels the rupee appreciation is a concern for IT companies.

There is a long-term trend for rupee appreciation, he said, adding that the worst in terms of a rupee appreciation impact is factored into the price.

 

According to Sinha, its contra fund had initiated an exposure to tech recently to a moderate level. SBI MF's infra fund has raised Rs 2,585 crore of which a sub portion was deployed in the recent correction, he said. 

 

Sinha said the fund house is bullish on capital goods, engineering, and telecom.

 

Excerpts from CNBC-TV18's exclusive interview Sanjay Sinha:

 

Q: What are you feeling? We have just gone through a ten-day period of intense volatility. How is the market positioned now you think?

 

A: If one sees the market at the current point of time, I think it is trying to come to grips with the global uncertainty and we haven't come out from that uncertainty altogether. As long as the US subprime lending problem is not addressed we will live in a phase of uncertainty because there is a fear that the follow out of the subprime lending issue might be on other asset classes also and more particularly in the emerging markets.

 

The way to look at it is that I am confident that the issue will find a redressal because it's not just a problem, which is specific to the USA. USA is the big borrower from three geographies Japan, China and Middle East. The issue is time as to whether this issue will get addressed within three weeks, six weeks or three months or so and till the time as we have that resolution we will have this phase of uncertainty.

 

Once that phase is over I am quite confident that possibility of the Indian market bouncing back is far stronger than any other markets and for that the corporate fundamentals in terms of the performance which they have put in, in the first quarter is the case in point and that is sustainable.

 

Q: What's your call on the rupee now and how are you approaching the technology sector in the light of all that's happened in the last two days and in the last six months?

 

A: The rupee appreciation is a cause for concern as far as the tech sector is concerned. We have one comfort in terms of the volume growth and their the guidance from almost every company is been that they see strong dollar revenue growth in their earnings but then they have no control on the rupee appreciation and going by the way global economy is now panning out, the long-term trend for the rupee to appreciate is very much there.

 

But we have to look into the scenario, which is about medium to near long-term that is about 6-12 months. The way theRBI has been intervening in terms of propping up the rupee every time it comes close to Rs 40 gives me the indication that as far as the tech sector is concerned the worst in terms of the impact of the rupee appreciation is already there in the price. So if the rupee does tend to depreciate a bit from here and even trends upto Rs 41.5, the outlook for the tech sector will become brighter.

 

So at this point of time if one have to play the tech sector the stance could be moderately cautious with a view on the rupee and if one want to play it on the long-term one will have to have a clear view as to that rupee will stay at range with the upside capped at Rs 40 and not beyond.

 

Q: You have a Contra Fund though. Did you pickup anything from technology in the past two months?

 

A: The Contra Fund has absolutely no exposure to technology till very recently. We did initiate an exposure to technology in the recent past but as of now the exposure is to a moderate level only because while the medium-term to one-year scenario does look positive for the sector but if one looks beyond that one will have to see as to whether the volume growth and the billing rates are strong enough to offset the appreciation on rupee that is likely to happen over the next three years or so.

 

Q: You just closed an infrastructure fund as well. How much money did you raise and have you started deploying any of it already in the market?

A: We raised close to Rs 2,585 crore in that fund and we have deployed a substantial portion of that in this correction that we got.        

 

Q: What do you like in infrastructure now. Is it the same capital goods, engineering, construction space or have you diversified into other sectors in there?

 

A: The capital goods and the engineering sector would be sectors of preference. We also are quite bullish on the telecom, which has a fair exposure in the fund extending beyond that some of the commodity stocks, which are also a play for the infrastructure theme, find a place in the fund and we have also picked up some of them also in the correction.

 

Q: What about real estate and the spate of IPOs, which are hitting the market. Have you been participating as a fund?

 

A: Yes we have and we also have an exposure to the real estate sector in the infrastructure fund. We believe that as a sector it will be difficult to ignore the real estate sector as a market play. The best thing that we can do is probably pickup the stocks at reasonably attractive valuations.

 

The trade off that we have to take here is the trade off between risk and reward and the best way to play that would be to keep the exposure at a moderate level wherever one feels that the valuations factor in a substantial part of the land bank value and keep the exposure higher in those stocks where the earnings come more from the construction activity because we believe that going by the sheer force of demand in the country rising from the income and aspiration levels of the Indian population is a strong factor for volume growth.

As far as the price of real estate is concerned on that we maybe little guarded and that's why we are playing it in this manner.

 

Q: Mutual Fund participation has not been that high even when the market was at sub 15,000 levels. Have you increased your cash levels and also in the past month or so have you seen any redemption pressure across funds?

 

A: If you are referring to the aggregate action of the mutual fund industry as reflected in SEBI disclosed figure, I find that a little surprising because we have seen mutual funds raised a substantial amount of money in the new fund offers as well as in the existing funds in the month of June and July.

 

We have also raised substantial amount of money in our fund offers and this was an opportunity for us to deploy the money. Whether there is significant amount of redemption pressure, which can explain this trend in the mutual fund numbers; as a fund house we have not seen those numbers. In fact on the contrary the day on which the market fell by more than 600-points we had net inflows into our equity funds and I am sure the same would have been the case in the other fund houses also.   

 

Q: Any Disclosures?

 

A: The views discussed are of the fund house. I will not talk about specific stocks.

 

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