Our focus has been on investing in companies that are likely to emerge stronger in revival later on, Harsha Upadhyaya, President & CIO – Equity, Kotak Mahindra Asset Management Company, said in an interview with Moneycontrol’s Kshitij Anand.
Edited excerpts:
Q) Economy is showing signs of green shoots and that is one big factor which is supporting the sentiment in addition to the positive global cues. Investors await news on stimulus from US and Indian govt ahead of the festival season. Do you think this will cement record highs by Diwali?
A) The normalisation process has gathered steam in recent months. This has been possible with a series of unlocking measures being unveiled by the central and the state governments.
India has transitioned from localised lockdowns to the widespread opening up with only a handful of sectors now under restriction ahead of the festive season.
The 2QFY21 has been characterised by improving data points on multiple fronts. COVID infections have started tapering off towards the end of the quarter and economic activity has picked up.
The pent-up demand and inventory filling ahead of the festive season is helping the underlying recovery. Recently, we have also seen another round of stimulus from the government that is aimed at reviving consumer demand during the festive season. However, we would refrain from predicting short-term market movements.
Q) Sensex reclaimed 40,000 in the week gone by but the euphoria is missing. Broader markets mostly remain mixed while stocks hitting fresh 52-week high is just a little over 100? The muted performance does not give confidence – what are your views?
A) The market has gained substantially (over 50%) from COVID-19 lows. To that extent, the expected recovery in economic activity levels and business performance is already well-discounted.
Some profit-booking at current levels after a strong performance is only natural and the market may consolidate/ correct in the immediate term before further evidence emerges of the economy gaining momentum.
Q) What is your take on the September month data of MF? Outflows continue from equity funds but at a much slower pace compared to the previous month.
A) The net outflow from equity funds in September was lesser than what we witnessed in August. There were a couple of NFOs (new fund offers) in September which raised fresh money from investors.
This resulted in an overall slower pace of outflows as compared to the previous month. However, the trend in gross redemptions didn’t change much during the month.
Q) What are your expectations from the September quarter earnings? IT sectors hit the ground running, and the initial commentary from India Inc. suggests that we are on a much stable wicket? Which sectors which you think could turn out to be a dark horse?
A) Once again, September quarter earnings are likely to be lower on a year-on-year basis. However, we are likely to witness sequential improvement in earnings trends with the extent of expected decline likely to be lower than what we witnessed during the June quarter.
Sequential demand recovery post the unlock measures coupled with cost moderation initiatives should aid in margin expansion resulting in lower earnings decline.
Technology, private banks, cement, and pharma should post positive year-on-year profit growth. Autos, capital goods, oil & gas, NBFCs and PSU banks are all expected to post profit declines.
Q) As a fund manager did your criteria for picking stocks changed or you added more parameters especially after the COVID breakout which has more or less shifted India Inc. as well as the economy to a new normal?
A) We continue with our disciplined approach to investing and follow our investment philosophy of Growth at a Reasonable Price (GARP).
We are focusing on companies with (a) low leverage (b) strong balance sheets and cash position (c) low/ flexible fixed cost structures and (d) good quality management and governance.
With the current disruption, it is also likely that the pace of consolidation across industries picks up the pace and we would see strong market share shifts towards a few companies. Our focus has been to invest in companies that are likely to emerge stronger in revival later on.
Q) With money chasing few stocks even defensives have become expensive. Is valuation methodology getting challenged post-COVID as stocks market valuation is at the upper end while fundamentals seem to be catching up?
A) The segments which are more resilient to COVID-19 impact have become safe havens and valuations thereof have gone up.
While we continue to own some stocks from these segments, we would also explore investing in some of the cyclical businesses if the revival starts to gain further momentum as valuations are more reasonable in that basket.
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