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Last Updated : Mar 27, 2019 01:32 PM IST | Source: Moneycontrol.com

Positive on banks and financials, auto stocks: Ambit AMC

Investors should focus on companies which have a long term track record of robust free cashflow generating business models

Sunil Shankar Matkar

The best way to invest in equities is to invest in sustainable earnings growth companies with great corporate governance practices – that is, in short, the coffee can investment philosophy, Manish Jain, Vice President and Fund Manager at Ambit Asset Management said in an exclusive interview to Moneycontrol's Sunil Shankar Matkar.

Edited excerpts:

Q: Many analysts expect over 20 percent growth in FY20 earnings. Do earnings matter at a time when there is ample liquidity in the system?

A: We at Ambit AMC believe that earning is THE most important factor when it comes to investing in equities and no amount of emphasis on it can be enough especially when it comes to investing in structural growth stories.

Having said that, we believe that FY20 should see a material pick up in earnings growth trajectory driven by multiple factors: a) sustained demand especially in the rural sector, b) margin expansion due to soft commodities and price increases, and c) pace of execution picking up on infra side.

At a time when macro-economic conditions are improving, an upward move in earnings growth trajectory is a great time to invest in good companies.

Q: In the backdrop of the ongoing rally, is it time to add high beta stocks in the portfolio?

A: We do believe that the market is now starting to factor in return of the NDA government in power, whether that happens or not remains to be seen. However, with strong Q4FY19 earnings coming up and the strong belief of a return of Modi government, it is hardly a surprise that markets have been rallying.

However, we like to believe that the best way to invest in equities is to invest in sustainable earnings growth companies with great corporate governance practices—that is, in short, the coffee can investment philosophy.

Q: Given that the auto stocks have been hit very hard, how do you look at overall auto space and its recovery?

A: Most of the issues that auto space face, are short term in nature. We would like to believe that the long term growth trajectory remains intact given the deep under penetration and consumer aspirations and improving disposable incomes.

We would believe the current weakness is a great opportunity to buy auto stocks from a long term perspective.

Q: Do you think the slowdown in domestic inflows in February is a risk even though FIIs poured over Rs 40,000 crore since February? 

A: Coffee can investing focuses on long-term value compounding and therefore, we are not that concerned on domestic inflows in the short term. Good companies will always attract investor attention and that is what we believe in.

Having said that, while there has been some slowdown in domestic inflows, SIP investments have largely remained intact. We should see this healthy trend of financialization of savings continuing over the next decade. If you see, domestic inflows initially slowed down on the worries of a coalition government coming to power.

But in the last two weeks, we saw markets rebounding sharply with the expectation of a stable government after the Lok Sabha elections. These are nothing but short-term, sentiment-driven market reactions. We are not perturbed by it, if at all, we would increase our positions based on our analysis wherever required.

Q: How do you look at the issue of pledging of shares and how must investors deal with it?

A: Pledging of shares has always been a reasonable liquidity generating source for promoters. But in the last few years, with stock prices going up, pledging grew rapidly and this became a challenge with recent dramatic fall in share prices as investors feared pledges getting invoked.

As we keep mentioning, investors should focus on companies that have a long term track record of robust free cashflow generating business models. Quality of business should remain paramount and the sole criteria while investing.

Q: Do you feel the realty sector will be back in action by end of 2019?

A: We see recovery in the realty sector is still some time away given there are multiple challenges such as high inventory buildup in key markets. With the advent of RERA, consumers are more focused on getting GST approved, fully completed houses from well-recognised developers only and this has led to buildup on under construction inventory.

Developers too have remained cautious on impact of RERA and have gone slow in many housing markets. Recent NBFC-liquidity crisis has just aggravated the pain in the sector with reduced financing option available for the consumer. From a consumer point of view, prices in key markets still remain a bit high and will undergo inflation adjustment in next year or so before turning attractive for consumers.

Although, affordable housing remains a key focus area for the government and this section continues to witness modest growth in tier-2/ tier-3 cities but meaningful pickup will occur in late 2019 to 2020 period with clarity on policies (GST rates and other subsidies) of the incoming government.

Q: What is your view on banking and financials space?

A: Banking and financials have been fairly strong which is a reflection of the fact that most of the NPA related issues are behind us and that system credit growth should be picking up as capex spending improves. We continue to maintain an optimistic view of space.

Disclaimer: The views and investment tips expressed by investment expert on moneycontrol.com are his own and not that of the website or its management. Moneycontrol.com advises users to check with certified experts before taking any investment decisions.
First Published on Mar 26, 2019 01:46 pm
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