The sectoral leadership is changing in the market which means there is potential for portfolio construction. Pharma, chemicals, telecom, insurance, FMCG (especially, packaged food) and IT services are meaningful in size, said Rahul Singh, CIO-Equities at Tata Mutual Fund said in an interview to Moneycontrol's Sunil Shankar Matkar.
Q: RBI finally announced one-time loan restructuring after a lot of demand, but with riders. What are your thoughts and will it really solve the NPA problem facing by banks for a long time now?
The stress in the corporate sector, given the scale of the disruption, needs some relief. Post moratorium also the recovery is likely to be gradual in the economy which means debt repayment capacity will be constrained in the system. Hence restructuring allows the standard assets some flexibility without NPA classification which could constrain their future funding. However, execution is key to control the parameters and guard rails under which restructuring will be allowed else it can come back as bigger problems. There is a lot to learn from the past experience of restructuring.
Q: After a rally from mid-May, do you think the market is due for major correction which can drag the Nifty to 10,000 mark or it is just consolidating around current levels to make a march towards 12,000 in coming weeks?
It's difficult to give such a short term view. Nifty valuations at 20x forward earnings and 17.5 FY22 leaves little room for further re-rating; therefore short term market movements will be correlated to global liquidity & equity market trends rather than domestic factors. However, the sector leadership is changing which will improve the potential for portfolio construction. Pharma, chemicals, telecom, insurance, FMCG (especially, packaged food) and IT services are meaningful in size.
Q: The broader markets still looked strong given the outperformance to benchmark indices (from March lows as well as year-to-date). Do you think midcaps and smallcaps can beat benchmarks this year, especially after underperformance in previous two years?
We are neutral between midcaps and largecaps for two reasons (i) Valuations are at par thus indicating there are no extremes to worry about i.e. either over valuation (like in second half of 2017) or undervaluation in midcaps. (ii) secondly, a lot of emerging themes in pharma, chemicals, digitisation and ecommerce enablement have more presence in midcaps.
Q: What is your advise to investors/traders?
The advice in terms of overall equity allocation is dependent on the individual situation of the investor – age, profession, present equity allocation and cannot be a "single size fits all". However, we would recommend a mix of Balanced advantage funds (to ride through the volatility in the markets) and Large and Midcap/Multicap (as it allows exposure to emerging themes through midcaps).
Q: Pharma (with participation by every stock) remained the leading sector in current rally. Are you still want to take the exposure to this sector and also are you bullish on the space?
Pharma was showing signs of bottoming out of fundamentals even before COVID and the scenario has been helped by the drug shortages as well as the likely shift of manufacturing from China to India. It is also important to note that Pharma offers a defensive option to the investors (along with IT services) in case consumption slows down or takes longer to recover given the COVID shock.
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