BP Singh, Pramerica Mutual Fund continues to stick to buy on dips approach. The recent sell off seen in most emerging markets (EMs) triggered by weaker-than-expected US manufacturing data, presents a good opportunity to enter the market, he told CNBC-TV18 in an interview.
Developments relating to withdrawal of QE have also been fretting EMs for a while now, but if the US Fed continues to taper then EMs will stabilise over a period of time, he added.
Like most experts, Singh is betting on export oriented sectors like IT, pharma and companies in other sectors, which are likely to benefit from rupee depreciation. On the flipside, he is unweight on autos.
Also Read: Hawk and dove, two Fed officials see steady cuts to QE3
Below is the verbatim transcript BP Singh’s interview with Sonia Shenoy and Latha Venkatesh of CNBC-TV18.
Q: What have you made of the market testing the 200 day moving average or all that volatility and the Foreign Institutional Investors (FIIs) selling, would you now stay back, call it a sell on rallies market?
A: It is a buy on dips market and we continue to stick to that particular view. Let us analyse the situation in this way, what is happening in the market at this point in time is mainly driven by the developments in the emerging economies. With this tapering which was almost expected, it now seems that the US Federal Reserve will go on the expected lines and keep doing tapering.
Now what signal it is sending to the emerging economies that were actually enjoying the lower interest rates from a fairly long time is that they need to defend their currencies, which is resulting in a situation where there is an emerging market outflow. In our opinion if the Fed continues to stick to the policy of where it continues to taper in every policy then it is a matter of time when EMs will stabilise itself. We will then get back into growth of individual economies rather than going after as most of the predictions of what the Fed is going to do.
Just recall in 2000 when Greenspan was increasing the interest rates, they increased it by 450 bps but the interest rates in the economies or the yields went up only by 60 bps. It is predictability and once the predictability comes the situation will improve. If I bring that back to India, it helped us the last time because it allowed the currency to depreciate and the benefit of that we are witnessing in the results which we have seen now that is the export oriented companies are doing well.
I hope this time when we are actually in a reasonable stronger position and we are letting the currency remain at the current situation, if we allow little bit of currency to depreciate from here, our economy can actually take advantage of it and bounce back very strongly. We continue to remain of the view that we are now turning around. However let me reemphasis the economic turnaround is at least six quarters away but market turnaround is very much what we are witnessing at this point in time.
Q: What kind of stocks would you stay with?
A: When it is going to be driven by the currency depreciation kind of situation which is always the starting point when the market and hence the economy turns around, the demand actually comes because of the corporates which starts exporting. You have seen exactly the same thing in the US economy happening. So today we need to focus on the export oriented companies so our focus is on not only IT and pharma but in the other sectors also, companies with lot of export business and dollar revenue.
Gradually as it moves forward in next four-five quarters we will start moving into those areas because it will result in the investments in the economy and then people will have to pick up the economy, the investment that is the capital goods and the cyclical stocks. Right now we are focusing on the export oriented stories which means the IT, pharma etc though there are some kind of technical corrections here and there but net-net at every correction we will be picking up these kind of stories.
Q: What are the other pockets that you would advise deploying some money into given the fall that we have seen in the recent days?
A: The biggest theme at this point in time is currency deprecation and is helping us in pickup in the global economy particularly on the developed economy side. India's export basket, a major portion of the exports or the dollar revenue comes from developed economies. Therefore all the companies who have dollar revenue in their books are the ones where one should be focusing on at this point in time.
The second benefit which is coming in the due course which will be over the period of next three-four months is that the commodity prices are going to correct. The next leg of the story which we are focusing on, is where the cost saving which will take place for the corporates. Corporates who have some domestic demand, but will be benefitting on account of the cost savings is the theme we are looking into. At current valuations we are not picking them up but when the correction takes place, auto and all those stocks will become one of the sectors to look at. Right now we are underweight on auto.
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