Positive on domestic economy, like banking: Kotak Old Mutual

With inflation coming off and macro indicators starting to look stable, the domestic economy looks quite positive, says Hemant Kanawala, Head Of Equity at Kotak Mahindra Old Mutual Life Insurance. He has a positive view on the consumer discretionary space.He also likes the banking space as he does not expect any further deterioration going forward. Most stocks in this sector have not come back to their highs after correcting last year and considering it shows good signs of growth, the sector can be looked at from a three-five year perspective, he says.Kanawala believes the telecom sector will see intense competition as Reliance Jio intends to capture 20-25 percent of the revenue share in the next couple of years.   He sees three major players commanding market share in the telecom space going ahead.Below is the verbatim transcript of Hemant Kanawala’s interview to Prashant Nair & Ekta Batra on CNBC-TV18. Prashant: Our fund managers generally collectively beating themselves up on Reliance Industries and the under ownership generally has related to the benchmark that RIL has what is your sense on the move that we are seeing? A: In telecom there has been intense competition for the last one year and that is leading to the pressure on the balance sheets of this company. Now Reliance announcing its plan to start charging its customers from April 1st has created some sort of optimism about the future of the competition. Today, one other player reacting to that plan and Bharti Airtel has announced new tariff plan. So, net-net what we believe that competitive intensity will continue to remain high. If say proposed or rumoured Idea Cellular-Vodafone merger goes through anywhere it emerges of a one more stronger players coming in the industry. So, eventually we see that this three players will command large market share. However, it is not going to be easy. Reliance has the intention of capturing at least 20-25 percent market share of the revenue within next one to two years. Till they don’t achieve that we believe that competitive intensity will remain high. It is not a clear scenario, some optimism is coming up because of consolidation in the industry, but it is going to remain intensely competitive and so we need to watch the developments rather than having a very clear call at this point of time.Ekta: Talking about the pharmaceutical space there is some amount of trepidations say ahead of Trump’s first speech to the Congress. Your sense in terms of what he might rollout and if in case there is border tax negotiation with medicare companies directly would you change your stance on pharma companies because of that? A: Pharma companies have multiple challenges today and every companies have different set of issues also. So, it is not fair to brush all the companies with same issues because companies which already had large US exposures and also had FDA issues in the last one or two years have to deal with it. There have also suffered more because of the pricing pressure in the USA compared to someone who is still getting more approvals. One can say broadly that companies today with lower USA presence are somewhat better placed because as they get more approvals it is easier for them to ramp up their US business. Whereas companies which already had the large US presence, are at the receiving end because incremental approvals will not add to their topline much. But if there are any pricing challenges in the same then the revenue and the bottom line suffers on that count. So, that is what broadly it is and then you also have some headwind coming from the new administration. We don’t know the exact, how will it pan out, but that can be an additional headwind for companies with existing US presence. So, broadly if companies are having already large business from US they are facing more challenges compared to companies which have smaller presence. Prashant: What are you most excited about when you look at stocks that you track or you might want to add into your portfolio because one is getting money and not being able to sit on cash because you can’t; the other is having money and really going out and wanting to buy things because you think it is a great idea and a great price? A: Broadly, we continue to remain positive on the domestic economy and we believe that both banking offers a good opportunity as well as the discretionary consumption. Interest rate have come down in the system. Inflation is remaining under control. So, micro parameter of India are looking better or at least stable. We don’t see any much deterioration happening out there. So, in that light we believe both banking and discretionary consumption will continue to do well. There has been correction in the prices from their highs last year. Some of them have recovered but still on a 3-5 year perspective they continue to offer good growth prospects so that is where we continue to remain positive. Disclosure: RIL, which owns Reliance Jio, also owns Network18 and moneycontrol.com