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Last Updated : Sep 08, 2015 03:30 PM IST | Source: CNBC-TV18

Like banks, IT, pharma; bullish on Eicher:Motilal Oswal AMC

The next major trigger for the market will be the US Federal Reserve's decision on interest rates, Sonthalia says, adding he does not expect the turbulence in China to settle in the short term

Motilal Oswal AMC saw record inflows into their schemes, indicating strong retail investor interest, says Chief Investment Officer Manish Sonthalia.

And while equity prices have fallen sharply, investors must bear in mind that India is falling in tandem with other global markets, he says.

The next major trigger for the market will be the US Federal Reserve's decision on interest rates, Sonthalia says, adding he does not expect the turbulence in China to settle in the short term.

Sonthalia is bullish on banks, IT, pharma, oil marketing companies and companies working on the theme of 'Make In India'. Among stocks, he is bullish on Eicher Motors and Sun Pharma in the long-term.

Below is the transcript of Manish Sonthalia’s interview with Ekta Batra & Anuj Singhal on CNBC-TV18.

Anuj: Tell us what is happening right now, what is the investor mood and personally do you think we are set to see lower levels from here on?

A: The mood is a bit somber; that is how clients are reacting. But to say the least corporate don’t seem to be sounding that bearish.

We had key bankers talking yesterday like Chanda Kochhar, Rana Kapoor and the corporate don’t seem to be as negative as what the environment is being made out to be.

Because of the correction that we are seeing in the markets, the mood is a bit somber, but fund managers are seasoned. They have seen this correction in the past as well, so nothing comes as a big surprise to anybody.

Quite a few of them are actually looking at this correction as an opportunity to pile on to their stocks which they have always liked.

Ekta: I just wanted to bring up a point that Latha Venkatesh had mentioned in the morning that retail investors would start getting a little weary when we start seeing them actually stop systematic investment plan (SIP) or reduced the SIPs amounts that they have. Is that already happening or if it is not already tangible at this point are more queries coming in?

A: The problem is with the trader community; it is the people who deal with the futures and options (F&O) segment of the market, who want to leverage on their little capital to get rich very quickly they are the guys who are suffering.

To put it on record we have seen record inflows into our funds and our funds basically comprise of retail, high networth investor (HNI) money.

Even as the foreign institutional investor (FIIs) are actually selling we are looking at a situation where the domestic individuals, who have actually seen the rally miss out till about the correction when it began, are looking at as an opportunity to get into the markets.

Because the good quality stocks are available at a slight discount to what the prices were one and a half month ago. It is a good opportunity; so there is absolutely stark difference between how a retail or the HNI trader is thinking. There is tremendous fear in the minds of traders.

Anuj: What Ekta was referring to and even Latha earlier in the morning, are we at that risk of that changing because when you reach a stage where even your one year Net Asset Values (NAVs) start to turn negative and your two-year NAV’s start to turn negative which is happening now, then there is a risk of seeing a bit of a stop of some of these systematic investment plans (SIPs) or mutual fund purchases. So is there a risk of that taking place, the domestic flows drying up a bit?

A: You have been in the markets as long as I have been. We have seen the markets for the last 15-20 years, we all know that there is no gain without pain.

It is not that human beings are wired to time markets to perfection that you will try and get in at the lowest and you will try and get out at the highest levels is not doable.

What we can broadly say is that India is falling in line with other global and Asian markets. Is it the Asian crisis again revisited? I don’t think so.

Are the valuations getting corrected for your good quality stocks, the answer is an affirming yes and we have seen that whenever people have actually participated when there is blood on the street, there is comfort when the markets show some sign of rationality.

So, we are traversing at the extremes. I am not saying that today maybe the bottom or tomorrow may be the bottom, we may fall another 500 points on the Nifty, who knows but this fall will be in line with other global markets.

India is not falling in isolation, so that is a point that needs to be kept in mind. One should look at this as an opportunity rather than as an opportunity to exit.

Ekta: If you had to point out one trigger for the markets to bounce back from current levels and to get that conviction back, what would it be?

A: Get over with the Fed rate hike sooner or later and we will be done with the uncertainty. We all know that China is slowing down, its problems are not going to go away in a hurry but at the end of the day if you have a twin problem or twin apprehensions on the Fed hike as well as the China slowdown, the bigger problem to get out of the way is the Fed rate hike. If we had to be done with in September, let’s get over with it and the whole market would resemble some sort of rationality somewhere down the line.

Anuj: Pharmaceutical has taken a big hit over the last the last three or four days that is one area which has hurt a lot of people because there was quite a bit of safe haven buying that had taken place at the start of this correction. What is your call on some of these names like Lupin Pharmaceuticals, Dr Reddys Laboratories, Sun Pharmaceutical Industries or even the midcap or the non-index largecaps like Aurobindo Pharma, Glenmark Pharmaceuticals, Divis Laboratories where we have seen quite a bit of correction?

A: Some degree of froth was definitely there in some of the pharma names. So, we in our portfolio have Sun Pharma which resembles the largest pharmaceuticals company available at the least elevated prices to earnings numbers. On the other hand we have had correction seen in Ipca Laboratories that we have it in our midcap portfolio.

However, I agree with the fact that there was definite amount of froth in some of the midcap pharma names and they are seeing some sort of corrections so be it and now the valuations have corrected. Some of the good quality names can be looked into.

Ekta: In terms of sectoral allocation then what is it stand at right now for you?

A: We are completely avoiding the commodity pack as a whole, private capex, infra – balance sheet in that space are quite stressed so even government spending is not going to improve the situation for a lot of infra companies per se.

So our favourite spaces continue to remain as a consumer, the export opportunity which is IT and pharma, private sector banks and selectively Make in India theme and some of the oil marketing companies that is about it.

Anuj: Two or three stocks that really led to the big outperformance for your portfolio were the big auto names, Maruti and Eicher Motors. Even they have started to correct now quite significantly. Would you be topping up some of these names or would you be tempted to take some money off some of these stocks now?

A: I am not actually trimming allocation in any of the auto names. I don’t have Maruti in my PMS Fund, I do have Eicher Motors and if a Rs 19,000 or 20,000 stock has got corrected to Rs 17,000, it has become more attractive because I am relatively more sure about the growth opportunities which this company has for the next 3-5 years.

One should be aware about what one is doing, so if growth comes at a slightly elevated price and that sees some degree of correction, I don’t think the conviction gets waived off. So, I continue to remain full allocated to Eicher Motors and will continue to do so in the future.

Ekta: Just wanted your view on the Foreign Institutional Investor (FII)flow picture. Do you think that once the band-aid is yanked out from the US, that is the Fed does raise interest rates, the volatility would settle, something that you alluded to earlier and hence FII flows will possibly come back convincingly into the Indian markets because if you compare us to an EM basket, we are much better on most macro parameters including growth as well as the rupee right now?

A: Absolutely, if you have some degree of uncertainty on a few factors and if that be taken out, sooner or later you will have markets pricing in most part of it earlier than what the decision came like if the Fed was to hike rates on September 17, markets in their progress have actually factored in some portion of it.

So, once it gets out of the way, you have the markets pricing in the event and we will get to a normalcy whether it is 500 points lower from here or 500 points higher from there only time will tell but you will get that event out and that is how markets function.

So, India is definitely in a better place as far as the forex side is concerned or the macroeconomics is concerned as compared to the Asian counterparts or companies which have foreign debt to gross domestic product (GDP) as much higher levels than what India has.

We are roughly around 23-24 percent and that is much lower than most of the commodity driven economies. So, they will be more vulnerable as opposed to India, so we would tend to outperform even the Asian counterparts and even currency should find some level of support somewhere around these levels.

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First Published on Sep 8, 2015 12:40 pm
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