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Last Updated : Oct 26, 2018 02:23 PM IST | Source:

Canara Robeco MF likes IT, pharma, bank, consumption stocks: Krishna Sanghavi

The fund house is underweight on non-banking financial companies, global commodities, and the automobile and telecom sectors

Himadri Buch @himadribuch

The rupee's depreciation against the US dollar has improved the business outlook for the information technology and pharmaceutical sectors and has boosted their fortunes, according to Krishna Sanghavi, Head – Equity, Canara Robeco Mutual Fund.

In an interview to Moneycontrol, Sanghavi said the fund house also likes retail and corporate banks for investments. He, however, said it is underweight on non-banking financial companies, global commodities, and the automobile and telecom sectors.

Sanghavi believes retail-oriented NBFCs with a sound management track record, risk management processes, and reasonable valuations offer an attractive investment opportunity in the current environment.

Speaking about the rupee's depreciation, Sanghavi said that a depreciating currency typically helps businesses that are engaged in export-oriented business and/or import substitution as their competitiveness improves, leading to improved profitability.

The rupee has fallen over 15 percent against the dollar so far this year and is currently trading at 73.43 against the dollar. The currency is down 8.3 percent year on year, which means the depreciation is at a five-year high.

Sanghavi believes companies in export-oriented sectors will benefit from the rupee's depreciation, while rising oil prices may impact companies where oil or oil derivatives are relevant inputs.

As on September 30, the average assets under management of Canara Robeco Mutual Fund stood at Rs 14,045 crore.

Edited excerpts...

Q: How are you reading the challenging macroeconomic environment, which has gone from good to bad, and now to slightly worse?

A: Oil prices are quite relevant for India, primarily as we have high import dependency for our oil needs. The rising oil prices do impact the currency and CAD adversely and hence macro outlook for the economy does get impacted. So, investors who look at investing with a macro perspective, they need to be cautious and aware of the challenges to the Indian economy and markets arising from higher oil prices.

However, for investors who are focused on micro (sector/company specific), the markets do offer opportunities to be invested in companies that are likely beneficiaries of the changed macro environment. A depreciating currency typically helps businesses which are engaged in export oriented and/or import substitution as their competitiveness improves leading to growth in profitability.

Q: How do you think this earnings season will pan out?

A: The earnings season for large and mid cap companies is expected to be good, with the economy on the growth trajectory. We see companies in export oriented sectors being benefitted from rupee depreciation realizations while rising oil prices could impact companies where oil or oil derivatives are relevant inputs. We could see some companies impacted by provisions made in respect of investments in ILFS Group's debt securities.

Q: Which sectors are you upbeat on and why? Which ones are you avoiding?

A: We are positive on IT and pharma (improving business outlook and benefits of rupee depreciation), retail banks (steady business growth) as well as large corporate banks (focus on growth post recognition/selective resolutions of NPAs). We also like consumption-oriented sectors (secular growth opportunity). Currently, we are underweight on NBFCs, global commodities, auto, telecom, etc.

Q: Do you think we are on the verge of another financial crisis, given IL&FS' defaults?

A: While IL&FS default has created some damage to sentiments, we are yet to know the full extent and impact of the crisis and the final default in terms of credit losses. We have already seen proactive measures by the government and RBI to quantify the problem and contain the damage. We would like to consider IL&FS as a specific problem rather than a systemic issue leading to contagion effect.

Q: What are your views on NBFCs? Do you think the golden run they enjoyed is now over? 

A: The NBFC as a segment has a very relevant role in credit delivery in the Indian context where NBFCs are able to reach customer segments where banks do not operate. Within NBFCs, we have mortgage financiers, vehicle financiers, MSME (micro, small and medium-sized enterprises) financiers, unsecured lenders as well as infrastructure financiers. We believe that NBFCs would continue to play this role.

However, the kind of growth rate they enjoyed in recent past may see a slow-down in the near term but this would be more due to their borrowing side issues rather than asset side worries. As the worries have not arisen from asset quality issues, we do expect the retail NBFC to return to a normal growth path in the medium term as the liquidity issues would recede.

We believe retail-oriented NBFCs with a sound management track record, risk management processes, and reasonable valuations offer an attractive opportunity to invest in the current uncertain environment.

Q: Given that there is a general election in 2019, do you think the market will remain volatile next year as well?

A: The history has shown equity markets having a volatile reaction to the outcome of general elections. While we believe that fundamentals of Indian economy and corporate sector matters more over a medium to long-term, the short term sentiments do get influenced by the election outcome as we witnessed sharp reactions by investors, after the election outcome in May 2004 and May 2009. The short-term sentiments usually create volatility.

Q: What investment strategy have you adopted after the market's recent correction?

A: Our strategy is to identify companies that are likely to benefit from the changed business environment. We remain focused on investing in companies which have a good business model, sound management team and which are available at reasonable valuations. We believe that usually in a sharp market correction phase, the investor reactions are extreme and they punish good and bad businesses in a similar manner. These corrections offer us buying opportunities.

Q: Are you sitting on a cash pile or have your funds been fully deployed?

A: As a philosophy, we believe in the power of equity as an asset class to create long-term value for investors and hence, we do not take market calls through aggressive cash holding. Instead, we remain focused on identifying companies with a good business model, a sound management team and reasonable valuations. And the volatile periods usually offer opportunities to buy these companies.
First Published on Oct 26, 2018 02:23 pm
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