Sharp correction in near term a buying opportunity: PhillipCap

The Indian market continues to remain attractive and any sharp correction is a good buying opportunitym say Kinshuk Tiwari and Naveen Kulkarni of PhillipCapital.Speaking to CNBC-TV18 from the sidelines of a PhillipCapital conference, Tiwari said investors are now more optimistic on the domestic market.From a valuations perspective, opinions are mixed, said Kulkarni adding that market has run-up a bit and valuations are becoming dearer. Ongoing reforms, however, is helping lift investor sentiment.While risks from global economy pertain, domestic market fund flows will not be impacted much. From, a medium-term perspective, fund flows will continue, said Tiwari. Interest in midcap names has increased considerably. PhillipCapital is betting on sectors like cement, automobile, media and consumption for growth.Below is the verbatim transcript of Kinshuk Tiwari & Naveen Kulkarni’s interview with Sonia Shenoy & Anuj Singhal on CNBC-TV18.Sonia: How has the mood been at the conference so far and what has the key takeaway been this time?Tiwari: The mood has been pretty much upbeat. Investor seems excited about this, various sectors we have seen interest across sectors, mostly I would say that people are slightly more optimistic. Anuj: Which areas have seen highest interest, we have been hearing that consumption theme has been extremely hot. Apart from that what else really stands out?Tiwari: We had quite a lot of interest in midcap names across sectors. People were very interested in midcap cement companies, auto companies, media these were the sectors which drew maximum interest. Sonia: On the cement space itself what is feedback that you are getting. We are hearing about higher cement prices but is that backed by higher demand as well and is the space looking good to go for the next at least two to three quarters?Tiwari: In terms of cement I would say that in the near term you may find some disappointment in terms of volumes as you know. However, I think people are willing to take a little bit medium term view on this sector. If you take a medium-term view you will find quite a lot of names in that sector worth investing.Anuj: What has been the feedback in terms of the valuations for the largecap Index because that is where the market has faced some headwinds off late and do you get a sense with the conversation that you have had with clients that it is going to be about broader markets from here on?Kulkarni: From valuation perspective it has been on little bit mixed bag so a set of investors consider that it has run up a little bit and probably valuations are topping out at around 18 times FY17 earnings. However, on the other hand people are looking at the intangibles like reforms are on cards, so from that perspective whether a 16 times is more expensive or 18 times is more expensive is pretty much is the sentiments. From that perspective I would say that there is little more optimism than pessimism from the valuation perspective. Sonia: We did see some very interesting companies attend your conference or rather you all have a lot of interesting companies as a part of your favourites as well names like KEI Industries, Escorts, Sintex Industries, Mahindra & Mahindra Financial Services. What is the sense you are getting about the NBFCs space, the rural themes some of these tractor makers? Is this just a start of a multiyear up cycle for them or do you think that a lot of the juice is already out in these stocks?Kulkarni: We did a parallel discussion on a rural also yesterday and there was lot of interest in this space. From stocks perspective some bit of run up has happened and from that perspective if I were to look at it whether just a good monsoon is going to translate into the meaningful improvement that people are looking at it probably that come with a lag, so from that perspective we are seeing that it will take little time.Anuj: What are the key risks to this market? Do you get a sense that most of the risks are global in nature or do you think there are some domestic headwinds as well?Tiwari: The way I am looking at it is that if you see this run-up in the short-term that we have seen globally started with commodities then equity markets and other asset classes in the very near-term this run-up was very sharp. I would say that correction would be a normal thing to expect in the near-term. If you see in terms of risk as you said, now at this levels we can actually get some of the headwinds from the global markets. That is where I would be looking at for the risk perspective.However, purely from the Indian market perspective I would think that even a sharper correction would be a good opportunity to look at the market. Again this market remains a very bottom up kind of a market. So, what market does is one thing, but I think there are going to be many opportunities if corrects. Sonia: Naveen was telling about the first panel discussion on the rural growth engine for India. You had another very interesting panel discussion which was on the digital infrastructure in the BFSI space. What was the key take away from that discussion? Is the digital competition, is it going to proof to be good healthy for the industry, a collaboration or is it going to be very disruptive? Tiwari: In that sense I would say that this space is going to be buzzing for a fairly long period of time. We will see a lot of different models experimentations by the industry in that sense this entire space is just evolving I would say. We will see a lot of collaborations between various new players that have entered the market with the older players may be some merger and acquisitions (M&A). I would say that it is pretty much, it is a primary trend that we are observing. However, I am 100 percent sure that this is going to be a very important trend to observe as we go long in this space. Anuj: I am looking at some of the list of Phillip Capital midcap favourites and some names really stand out. For me Parag Milk Food, it didn’t really have the best of IPO subscriptions but post listing the stock has surprised everyone. How do you justify a stock like Parag at current valuations?Kulkarni: Parag is one of those stories where growth is going to be there. So, people are concerned about the current return ratios, but considering that dairy is an industry where growth is not a problem. This company has a fairly strong set of brands; I think that over next two to three years stock should do reasonably well in line with the growth in earnings and growth in revenues. Sonia: Another stock which is a part of your favourite list is Nalco. You have seen the metals come back in the fashion now. In fact this week Hindalco is a biggest gainer, it is up almost 10 percent. What is the story with Nalco and what could be the triggers there?Kulkarni: Again most of these stocks are quite cheap in terms of valuation. From an operating performance perspective these stocks had bottomed out quite some time back and some bit of optimism has started creeping. So, volumes should starts doing well. From that perspective these stock look fairly attractive. Anuj: A word on fund flows? We have seen after a bit of a lull foreign fund flows have come back and the domestics have supported this market barring the month of March when we had that may be yearend factor or some profit booking whatever you may want to call it. However, from here on do you see both the global and domestic liquidity supporting the market or do you see some kind of retreat in fund flows? Tiwari: It is very hard to get an absolute handle on this. However, what I can say is that there is this entire talk of Brexit and all such things that are now becoming main stage. For Indian market fund flow is not going to be a problem. We may see some volatility in the near term, but if I see over a 12-18 months period of time this market should be okay. As you rightly said that domestics have been very strong in this market I would expect this trend to continue. AAs I said that market has rallied quite fast, I would think that it may correct in the near-term. However this market remains very attractive market to look at. I am sure that fund flows are not going to be a problem over a medium-term.