Bullish on domestic stories; will buy on dips: Ambit

Sectorally, Vaibhav Sanghavi of Ambit Investment Advisory is a very bullish on the domestic oriented industries like cement, consumer durables, and if the monsoons are good then he would also look at farm equipment, agro chemicals spaces.

He is not so keen of pharma on back of regulatory issues and metals, commodities until China stabilises.

With the Rajya Sabha elections titlting the balance in fvarour of passage of Goods and Services Tax (GST), Sanghavi thinks it could be a gstrong positive whenever it happens and the rub-off effect on market too would be positive. With regards to capital goods, he says he would look at the space only once private expenditure comes back.

Structurally, renewable energy is the space to be in but he would rather play the space through supply side companies, says Sanghavi.Below is the transcript of Vaibhav Sanghavi’s interview with Sonia Shenoy and Latha Venkatesh on CNBC-TV18. Sonia: Everyone is concerned about the Brexit referendum and the impact it would have on global markets. But as Indian investors sitting here so far away, do you think we should be worried or is there a possibility that the correction could be a great buying opportunity for long-term investors. A: Let us differentiate two aspects of this. One is the technical and the sentimental aspect of the Brexit and two is the fundamental internals, the trade related aspects with Britain. Now, on the technical and the sentiment aspect, there are again, equal reports on the both sides whether Brexit will happen, will not happen, and subsequent impact of what will happen until the Brexit. However, you have to understand that it is extremely difficult to call for any decisive conclusion on this and whatever happens, in my experience, which I have always seen is that ahead of these kind of binary events or so called highly sentimentally effective events, you will always see some amount of risk off happening globally. And in this risk off, you might see asset classes correct across the board and that is what we have been seeing that some amount of flight to treasuries. This will probably continue for the next week and once the outcome is pretty much clear and then we will again stop analyse and see how it is going forward. That is on the global piece. In terms of the trade aspect, I do not think Asia is much dependent on trade with Britain as such. So over a longer period of time, fundamentals will definitely catch up. Having said that, at this point in time, the fundamentals appear to be a little rich. So, it is just a cause of correction, or probably it gives you a reason for some amount of risk off on the table and that is what we will likely see. Latha: Sonia asked you only about the Brexit, but we have this out of the blue terror attack in Florida. The market can find bad news when it is overbought and it does look like we were reaching unhedged markets both in India and globally as well. So, what kind of a downside, do you see our markets going all the way to 7,950? A: It is difficult to assess on a number, but as you rightly mentioned, the terror attack, rather than affecting India it might affect some amount of sentiment on the Brexit vote because Brexit is something which will play out in terms of the common man there on migrants, on terror attacts of the Eurozone and this just makes the matter a little worse. Having said that, let us see how the poll goes on the Brexit and then we will decide. But yes, you are right, the valuations were optically looking a little expensive and this is just one cause of pullback. Latha: At what point will you start buying? A: 7,600-7,700 will be a great level to buy again. Sonia: We were speaking with Andrew last week and he did indicate that in the alpha fund, you have already increased a bit of your allocation. So, tell me what interests you at this point in terms of sectors? A: In terms of sectors, we continue to remain extremely positive on the domestic oriented industry and we have been for a long period of time led by two-wheelers, consumer durables and anything to do with the Indian consumer and domestic industry. We are not very enthused with the global economy because each and every economy is striving for growth which has not been coming in spite of eight years of cumulative quantitative easing (QE). So, we continue to remain bullish on the domestic side including the upcoming monsoon. If it happens well, then farm equipment, agro-chemicals is something we will look further. So anything to do with domestic, we are positive on. Sonia: I thought Sonia will repharase that question very differently. I mean, when we got that Ambit buy note, there was not a single news channel which missed it. It was everybody’s flyer, because it looked like the last bear had turned bull and that is always a source of fear. What made you so bullish so suddenly? A: One thing you need to understand that that is the institutional equities piece of the business. Latha: I know that you are going to tell me that. A: No, they have the right to their opinion and view, and they do some good quality groundwork. So, I am not here to judge their report. But any which way, we are positive on the longer term issues, but having said that, globally something which worry us and we will continue to monitor it very closely. Latha: You said you will buy agro-chemicals and stuff like that. What about pharmaceuticals? Did you look at the Dr Reddys Laboratories (DRL) news? Does that make you happy about that stock? A: The whole pharmaceuticals sector is something which we are not, on a sectoral basis, we are not very keen. Yes, there will be some amount of bottom up stories, but the regulatory overhang is too much to handle for and being an absolute return fund like Ambit Alpha Fund, we generally see to that there is not much of a potential negative news overnight or something like that. So, here if any 483 comes, you are gone for a toss in terms of your hedges and getting on to your alpha in terms of the portfolio. So, we better avoid it rather than venturing out in the sector. Latha: What about this Rajya Sabha Elections? They have definitely tilted the balance in favour of the good and services tax (GST) amendment getting passed. Do you play that theme? A: If it happens, when it happens, it will definitely be a very strong positive, no doubt about it. Whether it happens in this monsoon session and possibly because of the change in equation of the Rajya Sabha, I think it will carry a positive rub-off effect on the markets for sure. Sonia: Two more themes that have done very well this year, one of them is the cement space. Names like UltraTech Cement are up 20-25 percent. And the other one surprise, surprise, is the metal space. I mean Hindalco, Tata Steel are all up about 30 percent this year. Interested in either of these spaces? A: Cement, yes. Again, this plays into our domestic theme and cement is pretty much a domestic driven industry. We are extremely positive on the long-term structural, infrastructure boom in India. And, rather than playing to the capital allocators we would rather play through the materials like cement. In case of metals and commodities, again, this is a global industry and as I said, global anything is something which we are wary of. You will see, in this period, some amount of sharp pull-back, sharp upswings, but unless and until, the global economy stabilises or China stabilises, we do not think there is much merit in investing into commodities for longer period of time. There will definitely be some amount of trades, both on the positive and the negative side, but we would rather rent them than own them._PAGEBREAK_ Latha: Besides the Rallis of the world that that you spoke about, are you also positive on economy driven, economy facing stocks, like capital goods? A: You saw index of industrial production (IIP) numbers. Latha: That is exactly why I asked you. A: Right, so we will rather wait for some amount of manufacturing data getting positive and second, you also have to understand that since the capacity utilisation is pretty much on the lower levels, across the economy, we would wait for the capacity utilisation to go up, to see that the private expenditure comes back again. Once the private expenditure comes back in terms of the capital expenditure (Capex), we will surely look for those kind of capital goods and other industry facing industries. Having said that, in this time’s RBI policy, in terms of the monetary policy, we did find some amount of mention of higher capacity utilisation which is a positive. We will wait for that data to come in. Sonia: We started off by asking you about the global fears. No one can predict what will happen with the Brexit referendum or with the Fed meeting, but as long-term investors in this market, would you still consider this to be a buy on dips market? A: Yes, it is a buy on dips market. These global shocks will keep on happening and these global shocks will have markets correct anywhere between 5 and 7 percent. And any correction to 5-7 percent would be, definitely, a good opportunity to buy and get in for the longer term. India’s structural story remains and the earnings story has just started to pan out from the last quarter, so we are positive. Latha: This is actually stock specific, but even if you do not give me a price and a buy-sell, this Tata Power, going quite considerably into renewable space, you cannot ignore a Rs 9,500 crore purchase. It is huge, really huge. How would you tackle a stock like that? It is changing its very DNA. A: Agreed. Structurally, we are of the view that renewable is the story to be in from thermal power or – because we have been seeing the patterns of investments happening into renewable. We are also seeing what is this spate of fossil fuels abroad and because of the climate summit, whatever the restrictions have to come will come over a period of time, but it is on the right path. But we would rather play on the supply side, on that again, because we do not want to see such amount of heavy Capex or heavy investments on debt. Having said that, the direction may be right, but it is just that the intermediate period may be something like a lull period types in terms of performance. Latha: So, you are more a buyer in NTPC, Power Grid types? A: Again, those are Capex heavy industries.