In an interview with CNBC-TV18, IV Subramaniam, Director at Quantum Asset Management Company, outlined his view on the market and a number of sectors, including commodities, IT, pharma and financials among others.
Below is the verbatim transcript of IV Subramaniam’s interview with Ekta Batra & Anuj Singhal on CNBC-TV18.
Anuj: It has been a very volatile market at index level but stocks have done well. Would you expect this kind of trend to continue?
A: I would expect this kind of trend to continue. There are number of global reasons why the markets could be nervous including the increase in the interest rates in the western world. There could be some sell-off or some pull-back by the foreign institutional investors (FIIs). Given the fact that recently the stock performance have been weak it is quite possible that Indians who have been investing in large numbers over the past one year, they may also redeem. Therefore you could have some sell off coming in because of disappointment.
Corporate earnings numbers have been a little muted till now. Everything has been pushed back. Last year it was expected that things would improve substantially by the middle of this year, that hasn’t really happened. So, there are enough reasons for the market to feel nervous. Given the fact that valuations are not extremely cheap yet, one could expect the volatility could continue for some more time.
Ekta: How would you approach a couple of these commodity plays now? Say for example Cairn India which is directly linked to crude prices and that has fallen overnight. NYMEX is at seven year lows. Even say something like Vedanta, Hindalco which are directly linked to the global commodity cycle. Is it a good time to may be nibble based on valuations or is it a complete stay away?
A: Without going into specifics of any company, in general commodities look cheap but the question to ask is really what are the triggers? Why should these stocks move up? There it looks like the triggers are still sometime away. So, there is no hurry for people to get into these kinds of stocks.
Again, when I say it looks cheap it looks cheap based on some long-term fundamentals, long-term pricing of the products which they sell. If the products which they sell continue to see very low to declining prices then the trigger for these companies to really turnaround could be quite some time away.
That is one of the reasons why it may not be a good idea to invest right now. Although you know that there is value at this point and it may help to buy some. However, given the fact that there are no triggers immediately for these kinds of stocks I would wait before buying into these companies._PAGEBREAK_
Anuj: What would be on top of your buy list after the kind of correction that we have seen?
A: We are very positive on consumer discretionary, banking in general, although private banks look expensive. We like the tech space. We like all the public sector undertaking (PSU) in the energy sector. They also looked attractively priced. What we don’t like currently still continues to be the pharmaceutical, the fast moving consumer goods (FMCG), consumer staples and to some extent even cement companies.
They look to us little expensive and given that private capex isn’t yet picking up and public capex may not really drive the demand for cement to a very large extent, the stocks look very expensive, but otherwise the rest of the sectors we are quite happy holding on to the companies which we own.
Ekta: The perennial question between private and public banks?
A: We like both but in public we have got to be very choosy. Not all banks manage their asset quality well. So, we are comfortable with may be one or two banks not all the banks even though the valuations look expensive we are just not comfortable with the asset quality. In one or two banks the asset quality may be weak but at the same time we know that the management is doing lot of things which will improve the asset quality going forward and given the attractive valuations one could take that risk in investing in them.
We like private sector but they are not cheap. Many of them are like 3-3.5-4 times prices to book. So, it is a wait and watch. If it comes to our buy limit we will buy. Otherwise we will let go that opportunity.
Anuj: What about largecap IT and pharma names because that was one space where at least people could hide in those two sectors but even they have started to underperform now?
A: IT the business opportunities still look good, currency depreciation may help but really you are not buying these companies for currency movements. Many of the large companies still have huge potential to grow. The business models are proven so, I don’t see any reasons why I should be worried about near-term underperformance.
If they underperform, if the stocks come off we would be more than happy to buy some more into these large companies because anywhere you look whether it is in Western world or within Indian and emerging markets the trend towards spending on IT is only increasing. Some countries do it lot more than others but you do find that every company, every country wants to be competitive and therefore spend on IT is necessary.
Indian companies are well placed to tap into that opportunity, so we are positive. If it declines the valuations will only look better and there is no balance sheet risk in many of these large IT names.
Pharma is a different ball game. We were not comfortable with the valuations and of course some of them have come off because of regulatory risks but the risks have not gone away. So, unless you have convincing method to analyse and say okay if these risks emanate, these companies will be able to address that then one could go ahead and invest. We haven’t yet found a company where we get that kind of conviction so we are still staying away from investing in the pharma.
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