Mkt moving sideways; bullish on auto, pharma, IT: ICICI Pru

The market has seen bouts of volatility in the past few days and Manish Kumar of ICICI Prudential said the market has practically moved sideways over the last two years and primarily on the macro front.

Kumar believes, in market conditions like this investors should focus more on balance sheet than P&L. According to him, companies with better balance sheets have done much better. So, going forward, "We would like to take long-term strategy calls on 70-80% of the portfolio. While on the balance 20% we would keep taking tactical calls," he added.
Since a currency weakness has plagued the country, export oriented sectors can give good returns, feels Kumar adding that they would like to look at the auto, pharma and technology sector.
Also read: Nifty unlikely to hit 5600, cautious on metals: Nilesh Shah     Here is the edited transcript of the interview on CNBC-TV18. Q: What kind of an upside do you see for this market, is this to be taken as a temporary blip, would you be a buyer at these levels, is the market headed higher at all or are we in for a long lean phase?
A: Let me try and offer you some historical perspective. If we look at the behaviour of the markets for the last two years, it has been practically sideways and it has happened primarily on the macro front. There has been a lot of negative news that has been flowing in and more from the domestic markets than from the global markets.
We have seen weakness in gross domestic product (GDP) growth momentum, we have seen inflation sustaining at fairly high levels with the risk on the upside in the short-term. We have seen interest rates remaining high for almost two years even though it has come off quite a bit in the last six months.
We have seen some negative newsflow on the global front and more so coming out of Europe. On one side we have seen a lot of these negative macro data points both domestically as well as globally. This is something which is capping the upside or acting as a barrier to markets going up. Q: Yes, we have got this negative newsflow but inspite of it we have got these liquidity flows, which at least in August has taken us up, where do we go from here, from here do you think that there is enough substance to take us upside at all?
A: So long as the tug-of-war between the benign liquidity and the macro fundamentals remain, there is no reason to believe that we are deviating from the current sideways market. The range has been 4,800 on the Nifty on the lower side and yet, it did slip to 4,600 for a brief while.
Similarly, on the upper side, it has been getting capped at around 5,600 levels. As of now, there is no reason to believe that we are going out of that range. Q: What is it that you would recommend buying because we have seen a lot of polarization in the markets like defensives have done well but on the other hand infrastructure is getting decimated. Is it time to pick up the beaten down stocks or you think the ones which have done well will continue to move higher?
A: I think first of all these are times when we should be focusing more on balance sheet than just the P&L. If you look at the trend, the companies that have got better balance sheets have actually done much better. In terms of strategy, going forward, it is of course no different from what we have been pursuing in the past. We would like to take long-term strategy calls on 70-80% of the portfolio. While on the balance 20% we would keep taking tactical calls.
Now as far as strategy going forward is concerned, yes there are lots of challenges on the horizon. But as portfolio managers, it is our job to look at opportunities in these challenges and we see some opportunities in these challenges. For example, if there is a challenge of trade deficit which has been brewing for the last one year or so, we have currency weakness coming in and that presents a good story for export oriented companies.
Therefore, we would like to look at some of the export themes, be it in the auto sector, pharma sector and of course the technology sector. Similarly, if we believe that there is going to be scarcity of resources like coal or iron ore, then there are plays on these resources where we would like to hide or benefit from.
While the economy remains very challenging, I think there are opportunities in these challenges which we would like to capitalize now. And as far as the trading calls are concerned, as I said our view right now is that it is going to remain sideways. It means when the Nifty is between say 5300-5600 levels, we might be looking to take some profits and whenever the Nifty is falling to 5000 levels, we could be looking to buy into the markets.