ICICI Prudential sees the Greece situation as an opportunity for investors to increase their exposure to equity. Calling Greek impact on India to be ‘immaterial’, S Naren, CIO, ICICI Prudential AMC says market will continue to remain volatile because of the European crisis and the expected US Fed rate hike.
Naren is bullish on the IT sector. The structural changes in the business model will not reduce opportunities in this sector but might make new players winners on the back of digital and analytical transactions, Naren told CNBC-TV18.
He says banking stocks have slipped because of 'slower-than-anticipated resolution process' for infra non-performing loans (NPLs) and this will effect most of the banks, barring a few private ones.
With enough exposure to oil and gas he said some of the stocks in this sector are getting fully valued after 7-8 years of underperformance, adding “reform policies are not clear; so in case they get clarified there could be an uptick.”
Below is the transcript of S Naren's interview with Reema Tendulkar and Anuj Singhal on CNBC-TV18.
Reema: Are you worried about what is happening in Greece and is that a reason for you to reduce your exposure to equities or would this now throw up a an opportunity?
A: We see this as an exposure, as an opportunity to increase exposure to equities. We are not talking about traders here; we are talking about investors here.
Historically whenever there has been a big fall due to any global reason like Greece or Italy or Spain, those have been very good opportunities to actually put money in equities and this is again one such opportunity because Greece does not affect India in a material way.
Even the debt of Greece today is owned primarily by multilateral institutions, so I believe that this fall is an opportunity for people to consider increasing exposure to equity.
Having said that we do believe that volatility in the near term due to Greece is likely and in the medium term till the US interest rate hike happens, there could be some more volatility.
Anuj: The other big story of the day has been the way Tech Mahindra has tanked after the profit warning. I know you won’t talk individual stocks but in general you are bullish on IT sector, do you think the IT story has taken a bit of a turn for the worse or do you think this actually is a good buying opportunity with stocks having corrected anywhere between 10-40 percent?
A: Actually, as a sector the opportunity remains. There are some changes in business model which is happening because of the trend towards mobility, analytics and digital. So, in our opinion there is need for good work to be done to identify the stocks which are likely to be gaining. As you know, there have been companies where the results have been very good in this period, so it is all a question of strategy and implementation in different parts of IT.
Overall IT trend never comes down as seen in our lives so I believe that the opportunity exists but there is need for better work to identify the winners because it is possible that with the changes in the way technology is used, there can be new winners rather than the old winners.
Reema: A change in the business model for large IT companies cannot happen in a quarter, so for how many more quarters do you see this sector being challenged?
A: There would be at least a few more quarters where there could be volatility in some of these models and I believe that these companies have managed lot of transitions whether it is to the Y2K transition or the mainframe transition and I believe that they will be in a position to move to this kind of transition towards mobility and analytics and digital.
Anuj: Looking at your sector allocation in the prudential dynamic fund, your banking exposure has come down quite significantly from the high point and we have seen bank stocks also correct quite significantly. Do you get a sense that banking may have lost leadership in this bull market now?
A: Basically the problem is that some of these infrastructure related NPLs, a year back we were much more confident that these NPLs would actually come down quickly but some of these companies today have high debt to market caps that the process of resolution of the NPLs in the infrastructure sector has been much slower than what we would have anticipated. So, in this situation clearly it is barring a few private banks, the other banks are all affected by this issue which is one of the reasons why we have actually cut our exposure to banks in some of the strategies.
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