Focus on individual stocks; like pvt banks, RIL: Baring AMC

A late surge in the market helped the Nifty close in the green on Friday but it is still trading below 8000-mark.However, most market experts believe these corrections are routine in every bull market, and may not be too deep going forward as the market has already lost 13 percent from the top. To date bull markets have seen a correction of 15-20 percent.To know the way forward for the market from hereon, CNBC-TV18’s Sonia Shenoy and Reema Tendulkar spoke to Ajay Argal, Head-Indian Equities, Baring Asset Management (Asia).Argal says the house has always had a long-term perspective of 3-5 years and the focus has been on few individual stocks and the current time is as good as any to invest.He said: "We don’t focus so much on where the Sensex or the Nifty would be at the end of the year because it doesn’t really help us. We try to identify stocks where we think we can get good compounding story over the next 3-5 years."According to him the earnings growth may still hover around high single-digits or low-double digits but with that also one can find stocks where the earnings growth could be upwards of 15-20 percent. Speaking about specific stocks and sectors, Argal says, the house is very bullish on Reliance Industries going forward because all the negatives already seems to in the price; since the stock has  been underperforming for last 6-7 years. However, now with all the capital expenditure in place for a huge expansion in both their core business and telecom, the benefit will start flowing in next year, believes Argal.He is also upbeat on Motherson Sumi and believes that earnings growth could easily be in the range of 25 percent for the next 3-5 years and so would continue to hold on to itThe house is positive on financials, especially the private banks over private banks and the consumer discretionary stocks like passenger car manufacturers, auto ancillaries, says Argal. "We are selectively positive on few quality growth company stocks in industrials," adds Agral.Below is the transcript of Ajay Argal’s interview with CNBC-TV18’s Sonia Shenoy and Reema Tendulkar.Reema: How should long-term investors approach this fall now?Argal: For us the time frame is always longer, we typically look at 3-5 years. So, is this as good a time as any other time.Sonia: Do you see further downside in the near term?Argal: We don’t look at market from that perspective; we look more at individual stocks. If you look at individual stocks then there are stocks which have given positive returns even in the downturn and obviously there are stocks which have fallen very badly over this timeframe. Specifically, for us our style is very focused. So, we have very few number of stocks. So, if we are having a very concentrated portfolio, we are looking only for a few ideas then there are always good ideas in all kinds of market conditions. So, from our perspective this is as good a time. We don’t look at markets and we don’t look at technicals and how much the market can fall because that is dependent on so many things, I don’t think anybody can predict that.Reema: Your view on the Indian equities for the rest of 2015?Argal: So far if you look at Indian equities, the market has kind of languished a bit for quite a few months and for right reasons because the earnings is not coming. As we have seen for the year which is just over, there was hardly any earnings growth. In fact we are expecting that for the coming year we may not see too much of an earnings growth, may be high single digits or low double digits and that too if there is really some pickup which most of the corporates are saying towards the second half of this financial year. However even within that we find quite a few stocks where the earnings growth will be upwards of 15 percent, in some case upwards of even 20 percent. So, our focus is trying to get into those stocks and give them ample enough time as long as their strategies are playing out well and we see that is a good opportunity. Whether the market will do much or not difficult to say because there are quite a few sectors which are having slowdown and within that some of the sectors the valuations are not so favourable. The market is a composite of all those things and also what is happening on the global markets. We don’t focus so much on where the Sensex or the Nifty would be at the end of the year because it doesn’t really help us. We try to identify stocks where we think we can get good compounding story over the next 3-5 years.Sonia: Since this is a great time to be buying stocks according to you, sectorally where do you see good opportunities?Argal: We are very positive on the financials and I am sure this is just like consensus that we are very positive on the private sector banks because we see that the private sector banks will continue to grow. As such the banking penetration in India is very low. Moreover, we have also seen this accelerated move of gain of market share by the private sector banks over the public sector banks not only because of better credit quality but now in the last few quarters we have also seen that the capital is very scarce for the public sector banks, so they are not able to grow to the extent required.In that sense it is an easier market share gain for the private sector banks and there are quite a few of them where we can actually diversify even as individual investors. So, that is one space we like.Another space we like is few specific stocks in consumer discretionary – passenger car manufacturers or some of the auto ancillaries where we see that the growth is in very strong double digits, in some cases upwards of 20 percent in the earnings growth. It is going to continue at least for the next 2-3 years. So, we remain very positive on that space. We are selectively positive on few quality growth company stocks in industrials because industrials most of the stocks are actually already priced in for a sharp cyclical recovery but within that we see that for some of the stocks this cyclical recovery actually is going to continue and could become structural. So, we are positive on those stocks, like some of the port guys in India or the largest infrastructure company in India. We see that apart from the growth they are also focused on improving their balance sheet in terms of improving the working capital. So, that is another space where we are positive on.Sonia: In your portfolio you have Reliance Industries as a key holding. What were your takeaways from the AGM that took place on Friday and what is your long term recommendation on the stock?Argal: We are positive on the stock and we have a large position there because we see that most of the negatives are already there in the price and we say that because over the last 6-7 years the stock has underperformed very terribly which means that all the negative things are already discounted. Specific negative things like there has hardly been any growth over the last 3-4 years.

There has been huge capital expansion or capital expenditure and the capital expenditure is both in their main business which is the petrochemicals as well as Reliance Jio which is the new business. So, all those capital expenditure by and large is already done and that benefit is going to start coming in from the next year. So, we think that expectations are very low in the stock and any positive surprise even if it is very small can really lend to the performance of the stock which could be better than the market. That is why we are very positively positioned in the stock.Reema: You also have a holding in non-index large caps like Motherson Sumi. What would your view be on it? Should one just continue to hold on to it?Argal: It is a continuous process, very difficult to give a black and white answer because you continuously need to reassess whether the stock returns are commensurate with the stock returns which can happen even in the future. If the stock has run up too much then we might like to reduce which we have done in some of the other names. However some of the names, which we continue to hold even now because we think that the opportunity is still very large. When we say that we are happy to take some amount of underperformance especially with respect to the market in some of these stocks in the short term – may be 1-2 quarters because some of these stocks have already done well. So, it is not as if the stocks will move in a straight linear fashion, sometimes they move ahead a bit and sometimes they languish for quite some time. It is more important as to how they are going to pan out their business over the next 3-5 years. In some of the stocks which you just mentioned we see that the earnings growth can be easily upwards of 25 percent and if that kind of growth continues to happen over a long period of 3-5 years then we find value even now at these levels in some of these stocks. So, those stocks we continue to hold.Reema: What about technology stock. Over the week we had names like TCS, Infosys correcting on the back of visa issues. Would you be worried about IT names as well as the headwinds there or do you still remain bullish on the sector? Argal: We will need to see and some of this is always a business risk because you are operating in a different country, in a different regulation, so, whether you are continuously kind of adhering to it which these companies have demonstrated over the last 20 years that they have always adhered to. So, I see no reason that it could be different anytime soon but at the same time it is better to keep an open mind and see what exactly the issue is.

So, that will come to be known over the next few days and then we can always reassess but at this point in time I would say that this is part of the way of doing business. I am sure these companies will do everything which is right from a corporate governance perspective and they are going to handle the issue in the best way which is require for all the stakeholders.