Advise investors to have 60% cyclical stocks: Citrus

Anuj: From retail investors’ point of view do you think it’s as good a time to build portfolios or would you wait for some time maybe let the Fed event go and wait for better prices?

A: The perspective would depend as to what is the time horizon that you are looking at. If you look at where the market levels are today, it is recalibrating the fact that despite the new government’s coming to power about nine months back, we have not seen very significant progress on the macroeconomic front and unfortunately whatever little progress has been made – that has not cascaded down to corporate profits. Therefore, the FY15 earnings projection for the Sensex which was suppose to be up by about 13-15 percent, now runs the risk of being in single digits. If that is going to happen, we will have to recalibrate the projections for FY16 and FY17.

In that background the bigger weight on the market and keeping it at the current levels is the valuations and so much the recent events. If you look as what would be the outcome of the Fed decision - in case they do not raise rates and I think that is the more likely possibility, the downside to the market gets little capped or put at around the current levels but if they do not choose to raise the rates, do I look at the market crossing 9,000 points of Nifty. I do not see that as a possibility. So till the time as we see some real significant cascade of the economic upswing on corporate profits the index is going to be range bound. Therefore, to sum it up, the time horizon is very important. I do not see a major run up in the market in the short-term but if the horizon is longer of about 12-24-36 months then I am confident that we have a long way to go as far as the market is concerned.

Ekta: In your sense or opinion how important is the land bill for a trigger or a future trigger for the market or maybe a near term trigger as well?

A: If you look at the psyche of the market the market seems to have factored that the land bill will not get passed without significant modifications and whatever modifications are going to be made the market will take it as it already factored in the current levels. Given the strident opposition and the fact that the entire opposition has come together to oppose the land bill – is a likely possibility. I do not see the government being able to pass the land bill in the form in which they had originally introduced. Therefore, in that background I do not see too much of upside from the passage of the land bill. In terms of the long-term implications of the land being getting passed; it’s going to significantly impact positively, the industrial activity, the infrastructure developments that are going to be taking place in the country but that’s not going to be something which is going to be visible now. So the near term impact is more sentimental, the fundamental impacts are going to be more back ended.

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Anuj: The sector of the month has been pharmaceutical, in fact for some time now whether its largecaps or midcaps. Would you have conviction to buy some of these stocks like Dr Reddys Laboratories, Cipla, Lupin, Wockhardt, Glenmark Pharma at the kind of valuations that they are trading right now?

A: I have advocated that a portfolio should be made of up 60 percent cyclical and 40 percent defensive and that 40 percent defensive should be made up of IT and pharma.

Let me confess that I did not expect such a strident rally in the pharma in a very short span of time but as the event stand, we have a very large looming risk of the currency moving either way and the cyclical sectors of the economy beginning to show visible numbers maybe two quarters down the line. In that background today if you have to take a decision and you would be opting for the safer havens in the market to choose from then defensives are the one where one would look at putting money. The rally that we are seeing in the pharma stocks is partly triggered by the fact that money is chasing Indian equity and it is looking for the safer havens within Indian equity and that is chasing pharma. Now that the frontline pharma have seen some amount of rally, the interest is now shifting to the midcap pharma. However, whether this is the end of pharma rally. Not so. We still have some steam to go and if one is willing to hold on these stocks for at least a year, they will reward quite handsomely. 

Ekta: What would your opinion be on the auto space? If I look at Hero Motocorp and Bajaj Auto on a year to date (YTD) basis, both of them are down between 14 percent and 17 percent and now with the likelihood of rural wages not picking up as robustly, unseasonal rains at this point in time. Would you be buyers at current levels?

A: I would buy into the weakness of the auto stocks. The current numbers which have been disclosed by these companies and more particularly on the export front have not been very good. You have a valid point that if unseasonal rain do end up having a very negative impact on farm income maybe the future few monthly numbers from the Indian quarters also may not be very good. But does the two wheeler segment look attractive in the Indian context in the background of whatever is happening to the broader economy? I think the conviction is much more. So I would use this opportunity where the stocks are weakening to buy into these stocks rather than stay away.