Sridhar Sivaram said he is not a big fan of NBFCs and particularly housing finance companies (HFC).
The market continues to remain under heavy selling pressure despite touching a record high in August-end. The Sensex has corrected more than 3,500 points on rising oil prices and a falling rupee that has a direct impact on the broadening current account deficit.
Additionally, on Thursday, the government cut excise duty on oil to the tune of Rs 1.5 per litre and asked oil marketing companies (OMCs) to absorb Re 1 per litre with respect to petrol & diesel prices. This has increased the subsidy burden on oil PSUs like ONGC among others.
Sridhar Sivaram, Investment Director of Enam Holdings told CNBC-TV18 in an interview, "The market is smart enough to know such things well in advance, which is why we have been seeing a fall in oil marketing companies for long."
Sivaram feels that the crude is expected to stay negative for India and on top of it US interest rates are going up. In such case, emerging markets (EM) generally underperform.
Emerging markets have been down 12-13 percent and Indian markets have fallen 15 percent in dollar terms in more than a month now. "Overall EMs are in a tough spot right now. Look at 2013 data where EMs had faced a similar situation and then came back in growth in 2014-15," he said.
He further said, "Interest rate is going up but global growth is also inching higher, so look at the US and China both are growing. Emerging markets in select pockets are also growing but at a slow pace because of reset of currencies and market movement."
Currently, he said he would be a buyer. "If one remembers, in 2013 also we faced a similar situation where crude was at $80 a barrel, currencies falling, people worried about state elections and growth."
Speaking on the outlook in the coming days, he said currently there are many opportunities which are looking interesting. One can consider companies that have good earnings potential and high cash levels on books, as prices have significantly corrected.
"I would do staggered buying for over a month or two as stocks have the potential to make smart money after 12-18 months despite election noise."
He feels the hike of 25 bps seems to have already priced in but he won't be surprised if RBI maintains a status quo. He expects a 50 bps hike in repo rate by the end of FY19.
"If one looks at the inflation of August, and September's number will come with base effect so it is nearly five percent, which both are still under RBI's expectations levels," Sivaram said, adding that the food inflation is very benign.
Sivaram said he is not a big fan of NBFCs and particularly housing finance companies (HFC). "Currently these companies are in cash conservation mode. Significant MF outflow has happened, corporates are panicking and exiting. So I don't think banks are going to open the tap for them."
Big NBFCs and HFCs can manage to get funds but smaller ones will struggle and then they have to cut down growth targets over the next 12-15 months, he believes.
He says that he is not a bottom fisher in this segment. But he feels high CASA bank will significantly benefit from this NBFC situation. "It is a similar situation like demonetisation for them. Banks will not get high return on money but they will get deposits. So it is great news for banks and within financial space, I will double up my banks' exposure."
He said in case of HFC, RBI should come out with disclosure norms where HFCs have to disclose their asset side. "Generally disclosure norms are great for long term."
FIIs sold more than Rs 15,000 crore worth of shares from September 2018 while DIIs remained net buyers to the tune of Rs 17,000 crore worth of shares in the same period.
Sivaram said flows can never take the market higher. "In the past, we have seen that earnings and other macro factors take the market higher. Now earnings started improving and macros will improve irrespective what flows are."
Auto sales for August, as well as September, were mixed with commercial vehicles continuing to show good growth.
"I would say currently there is a slowdown in auto with good growth in the commercial vehicles segment. It is very difficult to pinpoint particular stock but I am still betting on auto due to structural growth," Sivaram said.
Sivaram said he would wait for one more quarter for taking a call on consumption stocks. "Broadly I would buy on dips in domestic companies including consumption, banks, construction but not IT and Pharma."
Rupee, earnings growth, and US growth helped IT stocks rally faster in last one year.
He said the rupee never helped IT companies if we consider the history. In fact, it is the business that gets help due to a rupee fall, he added.He feels there is going to be a disruption in IT due to a lack of out of the box innovation. "Digital is not big enough considering their balance sheet as they have to think out of the box which can give a sense for the next five years."