Mkts to stay buoyant on strong eco data: Motilal Oswal AMC

184138 Investors following Reliance. Share this News with them.

0

Like this story, share it with millions of investors on M3

Mkts to stay buoyant on strong eco data: Motilal Oswal AMC

Economies globally are expected to witness sluggish growth over the next couple of months but that is something that Indian markets needn't worry about. Nitin Rakesh CEO of Motilal Oswal AMC says despite the very low interest rate environment in the Western world, India has been posting fairly strong economic data.

Post your opinion here

 

0

Tweet

Share on Tumblr

Excerpts from Bazaar on CNBC-TV18 Watch the full show » Nifty BSE | NSE 30/05/12 Are Mutual Funds betting on Nifty? Other Stocks in this news Hindustan Construction Company | Punj Lloyd | IVRCL |

Economies globally are expected to witness sluggish growth over the next couple of months but that is something Indian markets needn't worry about. Nitin Rakesh, Chief Executive Officer of Motilal Oswal Asset Management Company (AMC), says despite the very low interest rate environment in the Western world which is likely to stay on that way for a fairly long period of time, India has been posting fairly strong economic data. "This trend is likely to continue."

"No doubt we have been trading in a range, but that too has been constantly moving higher. It's been fairly strong environment for us where every dip is seen as a buying opportunity. And, the dip too continues to be fairly limited, no more than 5-7% at any given point in time," he adds.

Here is the verbatim transcript of his interview with CNBC-TV18's Udayan Mukherjee and Sonia Shenoy. Also watch the accompanying video.

Q: There has been a lot of talk about the next three-four months being quite sticky economically for the world. Maybe in India too we might see a little bit sluggishness. Do you see that holding the market back or can the market move ahead regardless?

A: It's a fairly interesting position globally as well as domestically in India for us. While people have had their concerns around the recovery in the Western world especially the whole talk of a double-dip, at the same time, we have had fairly strong economic data coming out of our local markets here. At this point in time, given the very low interest rate environment in the Western world, this is likely to stay on that way for a fairly long period of time.

I think that's fuelling a fair amount of search for growth and arbitrage opportunities globally. That's likely to keep our markets fairly buoyant. I do not think we should worry about what is happening in the US much more than they need to worry about it. So given all that we have heard over the last four-five days coming out of the US Fed, coming out of the economists that focus on the Western markets, we are in for a fairly strong flow environment and I think in that flow environment, we will always have a positive bias to our domestic markets here.

Q: If indeed we do see some sort of minor correction because of what's happening across the globe, how protected do you think the downside is for this market?

A: We have had a fairly strong positive bias even though it looks like we have been in a range but the range is constantly moving higher in about 100-150 points on the Nifty, almost on every other month basis. Every time we have seen a correction we haven't gone above 5-7% from the recent highs. This time we went down by about 4%. We are pretty much within a percent of the previous peak again.

Downside continues to be fairly limited in our view, no more than 5-7% at any given point in time and withstood a fair amount of global shocks whether it was Europe, the Chinese concerns or more recently back into the US. It's been a fairly strong environment for us where every dip is seen as a buying opportunity.

Given the fact that the markets were running on fairly high pessimism, it was unlikely that it was actually going to fall much more than it did. To be a contrarian, there were more people looking for a correction and corrections do not happen when those kinds of environments exist.

Q: What about Reliance? That's the one which has been disappointing the Nifty and corrections are generally trigged by that one. Do you see Reliance having reached levels where it should be picked up or do you continue to see it as underperformer?

A: It's clearly a value stroke contra play. There are obviously some concerns in the very short-term around the level of debt or the way the growth is going to come from. Even if you look at it from an FY12 or FY13 basis, it's trading below its historical mean of around 15 times price to earnings (PE). It should be 15 forward earnings. It's clearly trading much below its historical valuations. It's clearly a value play.

The bet people need to make is how quickly they can start making the earnings before interest, tax, depreciation and amortization (EBITDA) margins from their shale gas and the other gas projects. If the market stays buoyant then it's only a matter of time before people start focusing on where the value is and this is going to be clearly one of those stocks where they will find value.

Q: Does the telecom space look attractive to you now?

A: Telecom was a contra play. It's beginning to become a mainstream play. Given the fact that we have heard, from the government, some indications, about potentially ending this price war and repairing the balance sheets of companies, giving them an option to return their license fees and not letting them trade license.

I think it means that the worst is over in terms of what the market saw as bidding wars and price wars. Everything was in the price. We have seen sentiment recover a fair amount over the last four-six weeks and nothing much has changed fundamentally. It's just a PE rerating that has happened.

Q: There has been some buying interest that has resurfaced in the entire commodity space. Does that look like an attractive opportunity now going in to the longer term?

A: A large part of that is really coming out of the fact that over the last few days we have heard the US Fed talk about doing what it can to prevent the double-dip. What that essentially means that the US is going to continue to think of ways to stimulate the economy.

In effect continue to print more dollars and in effect rebasing the dollar and a lot of that rebasing impact is coming in to the commodity cycle because commodities appreciate when the dollar depreciates. It looks like an attractive play both in the entire global commodities, metals pack and at least from a medium term perspective, it is something one needs to be very cognizant of. How it plays out in the longer term there are too many variables for us to predict. At best people have to take a trading view on the sector rather than a pure investment.

Q: What about the whole construction space? That space has got smashed up quite a bit- names like Hindustan Construction, Punj Lloyd, IVRCL, any particular worry which is reined in or sparked of this underperformance?

A: I think it is primarily to do with the quarter ending numbers. They were pretty disappointing primarily on account of poor execution, environment delays and so on. The confidence level in the sector is running a little low. Capital goods are a little better off than construction. We really need to see some follow-through action on the earnings side even though order books and all seem to be fairly good but that's what keeping the market little worried about the sector.

Q: Would you like the IT space because the client spends there have improved healthily in the last couple of months for sure. Any favourites in that space?

A: I think a lot is already in the price. We are not running any significant value or discounts to what's potentially ahead. There maybe some positive surprises at which point people will take a look at it, but the larger IT names are trading pretty much near their highs. Obviously it's a good sector to have but I wouldn't say overweight and definitely a neutral stance given the valuations status right now.

Q: You saw the auto numbers yesterday and they looked pretty impressive. Would you continue to be overweight and back this space or do you think they are trading at cyclical peaks of demand and things might start slowing for them?

A: I would say that we need to be overweight on autos on two counts. First, we do not know whether this is a cyclical peak yet. We are heading into the festive season. We probably are going to see a fairly significant growth environment at least over the next few months.

Monsoon is a big positive for the auto sector given the fact that it has a very large segment of population on the rural India side that is a direct buyer, especially two wheelers and also in commercial vehicles to some extent. Given the fact that most auto companies are trading cheaper compared to broader market, gives us a sense that there is still some steam left.

We will continue to probably get positively surprised by the momentum that we see in sector. Ihave been one of those fairly strong proponents of being strongly overweight on the sector and we continue to feel that way.