Mkts should brace for negative news in Oct: SBI MF

The Nifty closed Tuesday up 5 points at 4,479 while the Sensex shut shop at 15,465 up 43 points. US markets closed higher across the board as investors were encouraged by economic data and a bid up in technology and energy stocks. Asian markets are trading higher on Wall Street cues. Crude is back to USD 75 per barrel on supply concerns and expectations of lower US inventory.

Sanjay Sinha, CIO, SBI Mutual Fund, said the pullback that we saw in the markets was on account of the US. “If the markets are to sustain at these levels, then there should be no bad news coming out of the US. The markets are inching up ahead of the Fed’s September 18 meeting. If it doesn’t cut rates then that could be one bad news,’ he added.

The markets should also brace for some negative news in October, as financial companies will disclose what’s the impact of sub-prime on their balance sheets, he said. “We have not heard the last from the yen carry trade either. That issue will keep popping up,” he added.

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

Q: We have had a good pull back, what’s your call on the market now?

A: We had the pullback because we had some good news coming out of US and if the markets had to sustain that level we should not get any bad news from US.

As of now most of the hopes are hinging that on September 18, the Fed will announce a cut and if that doesn’t happen that will be one bad news for the market.

Going forward we should brace ourselves for some more bad news in coming October when the financial companies disclosing the amount of hit that they have taken on the subprime melt down. I think beyond that it is too long a call and we will always have to live with the fact that the yen carry trade unwinding story will come up and wane in and wane out and the sentiments will go and down with that.

As far as India is concerned we are fairly in the clear, the fundamentals are in place. There is now the new view as far as valuations are concerned. People have started giving credence to the fact that there is lot of embedded value in companies and if one takes that out then the Sensex in terms of valuation looks attractive. The growth stories are intact, Q1 results were good and the outlook for the Q2 is also fairly optimistic.

Q: As a fund manager would you be bullish on cement now after the pullback and do you have a fair weightage in your funds in your cement?

A: We have fair amount of exposure to cement and we stuck to that even when the stocks fell, in fact we added to our weights on those declines because we strongly believe in the demand supply mismatch which is in place now and its going to stay for at least another year and a half going forward. We would be bullish on that.

Q: Have you begun to take any exposure in the fertilizer space in any of your fund?

A: We have some exposure to fertilizers in one of the funds, which is Magnum Comma Fund. This space has limited amount of market capitalization, which you can bite into and so we have confined exposure largely to this fund and not to the other funds

Q: You had a bit of exposure to the metal space in your Comma Fund as well. How have you read big run-up in steel stocks and have you be booking profits or remaining invested?

A: We are even now bullish on the steel stocks and we believe that there is some more steam left there in fact we do not have an exposure to metal stocks just in the Comma Fund, we also have exposure to the metal sector in our Contra Fund and also in some other funds such as the largecap funds and recently launched Infrastructure Fund.

The consolation that is happening in that sector worldwide is going to keep the prices of steel firm. We have a scenario that the local companies have by and large an integrated play on that sector and one also have a scenario where many of them are undertaking capacity expansion, which are quite ambitious.

So going forward if the prices hold or improve from here that’s going to be one upside and with the capacity expansion coming in place for most of them one will also have the volume upsides getting captured.     

Q: One word on pharmaceuticals. Do you like this sector as a contrarian buy or are you staying away from it?

A: I do not think, as sector by and large it’s an attractive sector. The calls will have to be stock specific in the sector only then one can make good gains and that’s what we have done over the last one year. Going forward also I do not think the basics of this sector is going to change which will make almost every company attractive but there are sub sectors within the pharma sectors like maybe there could be opportunities in CRAMS more than there will in generics.

There would be company specific events which will be unfolding over the next few months one could capitalize on that so more a stock specific play than a sector play.

Q: What do you do with the power lot. Do you buy the service providers or are you equally bullish on some of these pure utilities?

A: I think one needs to be bullish on the power sector because we initially had the visibility that 11th Plan had in store 78,000 of mw additional generating capacity to be setup over 1,30,000 mw that we already have.

But one speaks to people in the Ministry of Power and speak to the significant companies in the power sector; the perspective plan is already in place to have power generating capacity upto 800,000 mw (eight hundred thousand mw) by 2032. It means that the visibility in terms of order book positions in this sector is not just for the next three years but visibility for many years to come.

With such a huge amount of generating capacity being setup in the country one will have the cascading impact on the other sub sectors, which is transmission, distribution and many of the capital goods sector related to the power sector. So as a core theme play within infrastructure it would be one of the dominant themes to play on.        

Q: What’s your call been as a fund on IT?

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