May 31, 2012, 03.58 PM IST
With the macro environment, both globally and locally, deteriorating, the outlook on equities remains uncertain. However, DSP Black Rock's Anup Maheshwari believes that conditions don’t remain the same forever.
In his view, the market condition may turn for the better next year. "With the rupee giving way, in a sense, it is a good catalyst for things to start improving. Something had to give way, that has come through in the currency and hopefully that will now lead to some repair on the deficit side."
Below is an edited transcript of Maheshwari’s exclusive interview on CNBC-TV18. Also watch the attached videos.
Q: It has been a bad May series and June looks like it is up in the air. How are you approaching the market as a fund manager now?
A: This is a time where patience is tested clearly. The outlook on equity seems to be fairly clouded, which has been largely driven by the fact that, globally as well as locally, the macros have been deteriorating. But at the end of the day, the conditions don’t remain like that forever. So we have always got to look at opportunities in times like these that you find better value in the market as well.
I think a few important things are happening now, which give us a little more confidence that we will have better times ahead probably next year. Firstly, we have gone through a situation where a series of macro accidents were taking place. So the news is just getting worse. But now with the rupee giving way, in a sense, it is a good catalyst for things to start improving. Something had to give way, that has come through in the currency and hopefully that will now lead to some repair on the deficit side.
Hopefully, we will lead to some more policy action by the government, which people have pretty much given up on. I think the macro will, gradually though it doesn’t turn quickly, but it will start repairing itself. So probably the scenario may improve a little bit maybe six months down the road.
Q: So next year it is, you are writing off the rest of this year, not likely to be pretty just like 2011?
A: Not writing it off. As I said, there are enough stock opportunities. We cannot bracket every single business under the market perspective. It is just that it is a difficult environment for equities to rerate upwards; that is fairly obvious. So it continues to be rangebound as it has been for quite some time now. This type of time correction makes the market cheaper; essentially that is the scenario we are looking for. But it is through phases like these that you have to turn more optimistic eventually and look for opportunities and businesses that are probably being punished or not given the right value. It is phases like these that will eventually produce strong returns in the future.
Q: How are you tailoring your portfolio right now? Is there a skew towards either exporters or defensives just to ride over this rough phase or are you taking valuation call on the beaten down stocks?
A: We had a slightly defensive stance for some time but we are looking to change that now gradually. We would rather have the portfolio somewhat balanced out. We are definitely looking at some more value names again and the comfort of buying defensives is now getting outweighed by the fact that valuations are on the higher side.
We are also seeing consumption slowdown a bit. Our feeling is we would rather have a more balanced portfolio. Six months down, the road as we start getting much more optimistic on markets, we would like our portfolio to be better positioned for that eventually.
Q: Even if there is a valuation argument to be made for specific stocks or sectors, are you getting the sense that there is more to go in terms of headline price damage itself? Does it seem like at the end of the year, we will have the markets trading significantly lower or will the second half just be about marking time around here?
A: The short answer to that is I do not know. Frankly, it does look like there is a time correction required because if markets go up 10% they get overvalued quickly for the data which is in front of us. So it’s difficult to sustain market moves upwards. But at the same time, as it declines, there are either two scenarios; it gives one sharp selloff or ranges around for a bit. But either which way, we have to look a little beyond this because that’s the opportunity.
I think investors should be now getting more interested and looking for price declines so that they can buy stocks cheaper rather than getting terribly fearful of price declines at this stage. I think that can happen that is the nature of the market. You can see selloffs or markets trending nowhere.
We do not know exactly how that is going to pan out. All we know is that as valuations gets cheaper; it’s definitely getting more interesting to look at equities, which hasn’t been the case for some time now.
Q: Someone was pointing out that this big fall in the rupee has caused a freeze up in domestic money as well, not just the kind of overseas money we are getting. Has that been your experience and do you think that is the big problem here?
A: Yes, from a fund flow point of view, it has been quiet. Domestically, we have not seen flows. In fact, even on the international side, outflows started picking up in the last month or so. It’s been our experience on some of the funds that we advise internationally. It is very logical at times like this it is typical what you would expect to happen as the currency gets weaker, you will see some international investors also getting increasingly worried and withdraw some money. So from a flow point of view, it’s not a positive sign but from our experience, flows are not an indicator of what is to come also. It is more outflows than inflows, is what I would say.
Q: When does growth trough out in your eyes because that’s a longer term call. Right now, we are dictated by events happening in Europe, the way the currency is in freefall but eventually what kind of growth, we see economically and in earnings will determine prices once the dust settles. By when do you think we will start on a slight process of improvement there because right now the process of marking down GDP growth or even earnings growth in many sectors still seems to be on?
A: That will be on for a bit. By the time markets bottom out, your growth trough is still six-nine months. You are pretty much in the last phase of your growth trough. But the data will not support markets rising supposedly or optically when markets are at their lowest point, which is why they are at the lowest point in the first place. There will still be a lot of negative news around.
So our sense is the macros will repair in a very gradual fashion. We will still some bad headline news on GDP etc in the next six-nine months. But the process of repair, as I said, the small things have started happening, which give us little more confidence that maybe a year down the road, things will be little better than they are today. In the intermediate term, you will see some negative headline news irrespective. But the fact is markets will respond to that earlier than the bottoming out of the headline numbers. Stock prices will more than reflect that at some point in time. Therefore, we are more focused on the markets than just the headline macro numbers.
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