When market is in a correction mode, there is tendency for mutual fund investors to sell, Ritu Arora, CIO, Canara HSBC OBC Life Insurance tells CNBC-TV18.Fortunately, the outflow of funds is not significant, she says, adding that domestic institutional investors (DIIs), especially insurance companies, are flush with funds in March.Also, renewed buying by FIIs has also helped improve sentiment, Arora says.She expects strong DII flows to support the market, and says she will focus on a bottom-up portfolio for the next 6-12 months.She feels sectoral allocation makes sense only once the market stabilises. Till then, she will be looking at earnings visibility as a key indicator.Arora is bullish on infrastructure and sees the sector outperforming over the next 2-3 years as valuations are attractive at current levels.She is upbeat on cement and likes select pharma stocks. Below is the verbatim transcript of Ritu Arora’s interview with Ekta Batra & Anuj Singhal on CNBC-TV18.
Anuj: All through that time when foreign institutional investors (FIIs) were selling we had domestic institutional investors (DIIs) supporting the market. Now we have seen a reverse of that FIIs are buying big but DIIs are using the higher levels to sort of create cash levels or sell. What do you think explains that and what is your own position right now as far as the market is concerned?
A: March is definitely a period when DIIs especially insurance are flushed with funds. Most insurance companies are building positions in the market. There might be some profit taking here and there, by and large there is. Also in mutual funds you do see a trend that when market is in correction mode for a while and when you see a relief you see some outflow of funds which unfortunately is not significant.
I think DIIs will continue to support the market in a big way and it is a huge relief to see FIIs back in the market. The two key things market was looking for was FII to be back there and corporate earnings to show an improvement. So, one has happened it is good news.
Ekta: Why do you think FIIs are back in the market in the month of January because it coincides with a big emerging market rally that we have seen globally plus the Fed being more dovish in terms of what they had to say along with the fact that we have passed the hurdle of the Budget? What is primarily the reason for the turnaround in the FII flows?
A: It is definitely global. It is a global risk on and it is not just only India has seen flows from FII it is the emerging market pack, as you rightly pointed out, has seen. The fact that US Fed is continuing to pause again for a while shows that they are worried about the growth around the globe as well.
China has seen a huge amount of volatility and many investors are worried about China. However, Europe on the other hand we will continue to pump in a lot of liquidity so will Japan. So, the liquidity remains, the risk on is back and then definitely India comes out as a relatively better positioned economy. Fundamentals on economic front have been improving and only getting strong, currency has been very steady be it inflation, all other parameters and growth also relative to other peers in the region looks steady.
What definitely will give the momentum to the market is when the growth starts reflecting in corporate growth in corporate results and earnings and from there, there will be no looking back for the market. However, this is definitely a beginning of the positive momentum.
Anuj: What is the portfolio stance right now or what would be your top priorities right now where you think one can invest even now and make a lot of money?
A: Clearly in the rally of 10 percent that we have seen in March, not everything has participated. We have seen sectors like metal outperform which was obviously at very depressed valuations that we saw. My portfolio stance for next six months to a year we remain a bottom-up stock selection because not everything will improve and within sectors not every company will show a positive traction. Hence, a bottom-up stock selection preferably with higher weights and high conviction where there is earning visibility is what I would recommend. However, sectoral allocation will make sense a little later as the growth kind of settles down and we see a general improvement across the sectors, but till such time keep an eye on earnings visibility.
Ekta: A quick question with regards to capital goods counter say something like a Bharat Heavy Electricals (BHEL) where there is a positive report which has come in from a brokerage with regards to beginning of a new power capex cycle in FY16 that bidding was very strong for BHEL, there could be an order uptick of around 48 percent in FY16. Your sense in terms of whether you would be a buyer into the like of BHEL and even something like a Larsen and Toubro (L&T)?
A: I am definitely a selective buyer in all the revival sectors and stocks be it capital goods, be it infra. It is important to take a specific view and have these. They may test patience for next couple of months and quarters. Clearly, these are sectors that are going to outperform in the next two to three years. I do like to add weight there. They are still available at very attractive valuations at this point in time and we have seen traction in sectors like road.
Cement is doing very well because we are seeing demand uptick coupled with price increases as well. So, we have started seeing the activity come back and hence it is a very good time to add these sectors and stocks selectively.
Anuj: Pharmaceutical has not had a good time specially the largecap pharma. Any bargains which is available right now and would you be bullish on pharma?
A: When you have a sharp rally like we did in last couple of weeks it is understandable that pharma will not led that. We have only seen the beaten down sectors like public sector undertaking (PSU) banks, metals etc really perform very well. However, from earnings visibility point of view having pharma in the portfolio makes absolute sense.
Of course there is an overhang of Food and Drug Administration (FDA) and one will need to be watchful and pick up companies where there are cleaner audit records, otherwise we will have event specific corrections and worries emanating in this sector. Having said that entire focus that FDA has augurs well for the industry I feel. It will help pharma companies have more reasonable business growth going forward in the developed markets. So, I personally have liked pharma also because of the earnings visibility there and I can continue to add weight in pharma sector whenever the opportunity is presenting in terms of corrections.
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