Implementation key to boost investment cycle: Purushottam

Professional investor Sangeeta Purushottam explains to CNBC-TV18 that implementation of the reforms announced by the government is essential to boost investment cycle in the country.

Below is an edited transcript of the analysis on CNBC-TV18. Q: What is your expectation from the market between now and the end of the year in the backdrop of events across the globe?
A: I think the underlying bias in the market actually will remain fairly positive, but where we head from here now depends a lot on the follow-through from the government. With the impetus of the earnings season over and the market remains focused on the quality of earnings.
So there has been a fairly sharp movement which has been stock specific depending on whether the stock has either met or disappointed vis-a-vis expectations.
But from here onwards it is really going to be back to the domestic economy and the follow-through on what was started a couple of months back in terms of positive announcements continued with action on the ground. That is going to be the key to restarting the investment cycle and that remains the pivot on which the markets will really turn. Q: Can you throw some more light on what you have made of the earnings season so far? What are the key stocks that you are overweight and underweight post the earnings period?
A: I think, the earnings season on the whole, has been better than many in the past, particularly for the large caps. By and large, companies have met expectations or the gap vis-a-vis reality and expectations has narrowed considerably.
The there has been a significant divergence in the performance of smaller midcap and small caps than in the large caps. So I think larger companies have been more resilient which was expected. It is fairly clear that the economy is at the top of an interest-rate cycle and it is a matter of time, before rates really start to come down.
Whether RBI cuts rates two-to-three months later or does not cut, does not really matter because there is some softening of rates on the ground. So at the moment, I am far more comfortable playing the interest-rate cyclicals which have a certain amount of quality. I would really be overweight on private sector banks as well as other consumption-related stocks related to interest rates.
Some auto stocks, at this level given that real estate has been beaten down after a long-long time, maybe merits a relook. I would also wait for more evidence of the removal of bottlenecks that have held back the investment process. There could actually be two scenarios.
One, there is a slow uptick in normal investment which takes place and that coincides with an overall GDP growth of maybe about 6-6.5 percent or we really put in effort and remove many of the bottlenecks which pushes growth rates back to much higher levels. Which of these two situations pan out really remains to be seen. Q: What do you make of pharmaceuticals? How would you position yourself in that space?
A: I think the pharma sector, on a stock-specific basis, still looks interesting. Pharma as a defensive looks better than many of the FMCG stocks. The valuations in pharma give a little more comfort than FMCG and many of them are more than a standard deviation above their long-term averages. So I think pharma offers a little more comfort, but it will be very, very stock specific because that has become the nature of the business. Q: How are you placed on something like Tata Motors that has had a big run this year and is announcing with its results on Wednesday?
A: I do not track Tata Motors very closely because of the increased overseas exposure which is always going to be much harder to predict than what is really going on within the country. So within the auto sector, I think there are other stocks that can be looked at. Q: How do you approach the infrastructure sector, particularly stocks like Crompton?
A: I think within the infrastructure sector, I would actually stick with companies which have shown some level of consistency in performance over the last two-to-three years. So it really makes sense to stay with the leaders as of now as the numerous statements of intent are yet to be implemented on the ground and if they do, then these stocks really get into multi-year cycles.
So it does not really matter if you have missed the first 10-15 percent upmove. I would rather wait to see improvement on the fundamentals on the ground before entering into stocks which have actually not really performed over the last two-to-three years.
Personally, I would avoid a stock like Crompton at the moment till I see evidence that the European business is actually coming back on track as that is something which has really been disappointing over the last several quarters and the guidance has always turned negative quarter-by-quarter. So one really does not know where the bottom is.