There will be bear markets along the way, says Arvind Sanger

On earnings front, he said Q1 of FY18 is a transition quarter, earnings are modestly positive so far.

He hopes to see resolution to non-performing asset (NPA) problem in banking sector.

Below is the verbatim transcript of the interview:

Anuj: 10,000 on the Nifty. Is this a start towards the next move towards 20,000 or would you take some money home at 10,000?

A: Let us be clear it is just a number. We all like round numbers, so we make a big deal of round numbers but the bottomline is where is India on in earnings growth trajectory and at the end of the day the market will go up on that and if we want to make a bullish picture for the long-term, the reality is that the underpinnings of India growth story looks solid, the demographics looks solid, the political background looks solid, so we have room to be optimistic for long-term bull market and investors are coming into the market but as we all know things always look rosiest before something comes along to upset the applecart. So there will be bear markets along the way. You are not going to go from 10,000 to leave alone 100,000 which you were talking about, but even 10,000 to 15,000 or whatever number you want to pick, there is going to be a lot of rough rides along the way but for the short to medium-term we can see a lot of optimism. And long-term, as long as you can stomach the volatility and there will be job done, there will be economic slowdowns, there will be political surprises, if you want to take a really long-term view. But the reality is that the underpinnings of the India growth story is driven by good companies across broad range of sectors being capital efficient and focusing on returns and that has driven some of the best performers if you look over the last five-ten years. Some of the big-big winners have been companies that have delivered over time in terms of capital discipline and return discipline and I am sure we will continue to find companies that do the same going forward.

Latha: How have you looked at the earnings so far? We have got a bunch of big boys - Axis Bank, Reliance Industries, Bharti Airtel, Hero Motocorp, Asian Paints, Hindustan Unilever (HUL), many of the big boys in the Nifty have already announced numbers. What have you made of the earning story?

A: I think the earnings have been okay. This quarter is still, in my opinion, a bit of a transition quarter, so it is not blowing out in a big way but the earnings are modestly positive, I would say. But the 15 percent plus earnings growth that we would like to see, we are probably not going to see broad based earnings of that kind of strength in this quarter but I think that is in the pipeline and this quarter is the first quarter where demonetisation was behind us but it is also one of the quarters where some of the minor dislocation from goods and services tax (GST) was happening. So I see this as a transition point, so it is turning out to be reasonably decent. I think we had some good results but we haven't had any blowout kind of a broad base but the banking sector is one sector where we hope to see more and more signs that the NPA problem is slowly passing the peak and starting to recede slowly. It's not in the rear view mirror yet but it is moving towards the downhill slope and hopefully it will be, in a few quarters, in the rear view mirror.

Reema: Speaking about individual stocks, we have seen strong earnings from the likes of HDFC Bank, Reliance etc. What have been the additions that you have made to your portfolio recently?

A: In different sub sectors we have been looking at companies. We have added recently one of the housing finance company that we think is a good value that we haven't own. We are also looking to add names in consumer related but not necessarily middle of the road fast moving consumer goods (FMCG) kind of stocks but other consumption plays but I do not think we have added anything dramatic. We have been nibbling at the margins as we haven't been taking too much profit on our existing positions, so the way we would add would be taking some profits on existing positions and right now we haven't been aggressively pruning some of our winners. When we do, we are always looking for new ideas but nothing that has come out of earning season so far that cause us to pick up something.

Anuj: A couple of issues. One, how are you placed on telecom? We have seen a decent rally from the lows especially for the likes of Bharti and second, metals - the rally is continuing unabated globally. Do you see more legs to this rally?

A: On the telecom space, we are not there. We have stayed away from it because of the Jio entry but obviously those stocks were somewhat oversold and laggard, so there has been a bit of a catch-up rally but we still believe that there is a lot of balance to come in. We are not sure how it is going to play out. So that is not a sector that we are particularly involved in.

Metals, we unfortunately have not played any of the Indian names. Indian names have done exceedingly well. But on a global basis the metals rally has been quite amazing. It has taken us a bit in surprise because of the China news coming out much better, but the one trade that we regret missing is when India put in tariffs on imported steel - that has driven a big rally in the steel names in India. But in the metals names whether it is Hindalco Industries, Sterlite Industries or some of the others in the steel sector, they have all done exceedingly well. I still think this is a China bet and maybe steel is a bit more of a tariff bet but the China bet is also turning out to be quite positive, so we think the metal sector which has been a laggard for a long time, could have some legs if China continues to deliver on its growth story.

Disclosure: Reliance Industries, the parent company of Reliance Jio, owns Network 18 that publishes Moneycontrol.com.