Use dips to advantage, buy good balance sheets: Reliance MF

He advises investors to go for companies whose balance sheets are repairable in the near future. He says there may be plenty of companies available cheap, but the balance sheets of many of them will take a long while to fix.

Singhania prefers private sector banks over public sector ones, though he feels the latter will benefit to some extent from rising values of their bond portfolios.

He sees the upcoming Budget to focus on the long term strategic goal plans of the government. He is also bullish on teh urban consumption story.

Below is the verbatim transcript of the interview:

Latha: What can you tell us about the India interest since the 2014 conference, has the interest increased sustainably? Are we able to maintain that interest in investment circles?

A: From an investment conference perspective the number of registrations we have in this conference is the highest ever. That clearly shows that interest in India is definitely high. We also have a good area of speakers starting from Mr. Arvind Panagariya and ending with Mr. Russell Napier so that also shows that the conference and India has been able to provide the best of best as far as their interest in India are concerned.

From an investors perspective we cover a broad area of issues in this conference. It is not a stock specific conference but a more global economy and Indian economy related conference. The mood is very much positive compared to what it was last year. Last year we had some hope, this time the hope is really getting translated into lot of optimism and lot of enthusiasm for the economy as you move forward, so it is a great times.

Sonia: Do you think the minor correction that started in the month of December has come to an end or do you foresee more roadblocks?

A: Corrections are a way of life as far as markets are concerned. Markets are never going to be linear, you can’t have a market where every day the market moves up or every day it moves down; we will always have this swings. Obviously the world is one; a lot of factors are influencing volatility, money supply in the world, interest in financial markets is very high, all the investors have the same information at the same time and they want to act at the same time also which causes more volatility in a short time.

However, our view is that any corrections even in the future are going to be swift and short both in terms of the percentage corrections as well as the time correction. Our advice to investors has always been that use volatility as your friend and don’t make it your enemy. So, use these corrections to your advantage.

The scenario going forward even from a global economy perspective is not worrying. From an India perspective as I mentioned earlier there is a lot of enthusiasm, there is a lot of optimism and as I said use this volatility as your friend. So, don’t get hassled about it, whether this correction is over or not, whether 100 points Nifty up or down - I don’t think it is going to matter in the broad scheme of things unless you are a trader. So, be positive, stay positive and look at slightly longer term.

Latha: That said you have to look at the longer-term we have put in 31 percent rally already in 2014 and there aren’t that many green shoots of growth. Would you worry that valuations have run way to ahead and may be we will see some period of quite in the markets or even continued selling say in the first half of 2015?

A: It depends on your expectations as an investor. If you expect to make 100 percent in one year obviously you are going to be disappointed. Having said that if you go back and look at the period when the first real growth or the rapid growth in the economy happened which was a period between 2003 to 2008, when the rally started in 2003, there were no green shoots also that time.

However, if you were a late even by one year you would have had to buy stocks almost 100 percent higher because when the growth comes and when the numbers start to come you are not going to be able to buy stocks at the level which you were able to buy last year or even in some cases even now. I agree with you the stocks are not cheap you have to be careful of what you are buying. However, there is a still a long way to go that would be our perspective - when things improve, which they definitely will because all the macro economic factors have started to improve.

No one six months back would have thought that the Wholesale Price Index (WPI) would fall to zero. No one would have thought that oil from USD 115 will fall to USD 50. So things when they change they change rapidly. There are always surprises both on the negative as well as positives.

Our view would be that the surprises on the positives are much more than they are going to be on the negatives. So as I said if your expectation or if you aim to make 100 percent in one year please do not invest in equity. However if you are satisfied with good mid teen returns on a tax free basis year after year I think next four-five years are going to be very good.

Sonia: One of the big positives we heard from the Coal Secretary a couple of days ago was the possibility of higher coal production after almost a decade of sub par growth and that will benefit a lot of power companies, infrastructure companies, etc. How do you play this theme in the market now?

A: One thing is we have to play the broad India growth story. If you see across ministries, most of the ministers have been very vocal about their plans; the roadmap has been set. Obviously the country is suffering in the near term from lack of resources but the fall in oil prices has been a sort of a god sent positive and that would give the economy a lot of resources.

Whether we increase coal production, obviously it is going to be positive; how we play it, we have to back companies which are going to be positive which would be the power companies specifically on this issue or on the railway side companies which are engaged on the railway side. However, one note of caution, play companies which have balance sheets which are repairable. There is a section of companies where the balance sheets are irreparable and there is a section of companies where the balance sheets are repairable. I think the benefits are going to be more pronounced from an equity investor perspective in companies where the balance sheets are repairable.

So, while focusing on the big picture which would be power, infrastructure, defence, railways you also have to be very clear in the stocks which you pick and it is very visible. If you see within the sectors, if say auto has done well, there are companies which have done phenomenally well and there are companies which have not performed at all. Same thing is the case across sectors. So, stock selection even within sectors where you are positive will become very important. So, our call would be that stick to quality, stick to balance sheets where it is repairable.

Latha: Finance is a big sector for all funds and last year the bank index, the Bank Nifty turned in a very smart performance of almost 60 percent but even better was the performance of the PSU banks. Where would you put your money in 2015 or at least put your bets? Is the finance sector itself likely to turn in a decent performance, which sub sector within the finance space?

A: First of all I would like to correct, the private sector banks have done better than public sector banks even in 2014. The second thing is there is positiveness in both the category of banks. Our call from a longer term perspective would still be the private sector banks because inherently they are gaining market share, the problems in terms of the duration of the top leadership is not there, the problems in terms of asset quality is not there.

There is some green shoot as far as the public sector banks are concerned. This Gyan Sangam and complete autonomy to the public sector companies, at least the announcement is very positive. The fall in the government yields is again going to be near term positives but there are some structural issues. So, unless those structural issues are resolved as far as public sector banks are concerned our longer term bet would still be on the private sector side.

The public sector banks would be tactical plays based on valuation and the near term up ticks which can happen. However, till we see the longer term issues resolved we would stick with the private sector banks.

Sonia: This will be the first full Budget from the new government so all eyes will be on that. What are the realistic expectations from the market?

A: Budget always has a lot of expectations. As you said this is the first full Budget, both the Finance Minister as well as on the railway side the Railway Minister have been very vocal in trying to say that they want to build India from a 5-10 years perspective. So, from a market perspective the roadmap more from a longer term perspective is something which would be watched very eagerly.

So, whether the roadmap of fiscal deficit going down to 2.5-3 percent over a period of time is there or not, whether the imbalance in planned spending and non-planned spending is managed or not I think it would be more to do with the longer term strategic goal plan as far as the country is concerned rather than watching 5 percent excise duty cut or increase here and there. So, it is going to be more like a company making a five year vision rather than focusing on the quarterly numbers. The same thing would be expected even from the Budget. At least from our perspective we will be happier to have a five year vision rather than trying to say that next year the fiscal deficit is going to be 3.8 percent or 4 percent.

Sonia: There are many expectations that the market has generally in terms of clarity on retrospective taxation, on GAAR, on FDI in various sectors, etc. Suppose we don’t get one, two or three of these things do you think the market will be disappointed or given that there is so many reforms that the government is already undertaking outside the Budget it will just move on?

A: In August 2013, the market fell because there was the concern of QE tapering happening. As we speak there is no QE left and still the US markets are at an all time high, the bond yields are at an all time low and the emerging markets are thriving. So, it is very difficult to say that if this thing happens the market will be positive or negative.

The market looks at a holistic picture, the Finance Minister and the government realises that whatever they need to do has to be done in a manner which is not counter productive, it is not negative from an investor perspective. We in India continue to be a deficit country as far as capital is concerned. Our view would be that the government cannot afford to do anything which would be negative from foreign investor’s perspective.

So, I don’t have an answer to that but our view would be that don’t look at one point and try and paint a negative picture on it. We have tried doing it for so many years and time and again we have been proven wrong thankfully from an equity investor’s perspective. So, we are optimistic and let us see we will take things as it comes.