FMCG likely to rebound first from demonetisation hit: PPFAS MF

FMCG companies are already staring at a 20-30 percent fall in sales post the currency devaluation exercise and much of the weakness is in the rural markets, Thakkar added. 

Rural markets account for 40-45 percent of revenue for all major FMCG-/retail-focused companies. 

“The balance sheets of most of these (FMCG) companies are very strong, so they can extend credit to their distributors. So for FMCG companies, we believe in the medium-term prospects and valuations are comfortable,” said Thakkar who likes reading fiction and crime thrillers.

While discretionary consumption goods like auto and white goods could be hit harder than staples, Thakkar sees an opportunity to buy quality consumption stocks at lower price points.

Demonetisation hasn't impacted financial markets highly, Thakkar said, “but there could be somewhat more pain left we can’t completely rule that out.” He added that a pick-up in corporate earnings is the only trigger for a sustained rally in equities.

Thakkar attributed the FII outflows to demonetisation and a weak rupee. “Outflows are because of demonetisation and weak rupee, but from a long-term perspective, I think it is sending out an excellent message to the global community that India is showing the will power to follow through with tough reforms that investors over the years have been calling out for.”

Foreign institutional investors have net sold nearly Rs 19,000-crore worth shares over the last month, one of their longest unbroken selling streaks the market has witnessed in the recent past.

A weak rupee does not augur well for foreign investors, as any depreciation in the local currency eats into profits of foreign investors when they redeem their investments. 

Following the government's move on November 8, the rupee had dropped by over 90 paise to 67.77 against the greenback and is hovering close to a record-low.

A chess fanatic, Thakkar said, weak rupee will benefit export-oriented sectors like IT and pharma.

“While the government and the Reserve Bank of India (RBI) would not want a steep fall in the rupee, they wouldn’t mind some softness in the rupee to encourage exports,” Thakkar, who admires investment strategies of global fund manager Warren Buffet and Charlie Munger, said.

The fund house will continue to buy pharmaceutical stocks apart from accumulating consumer discretionary scrips.  PPFAS MF is also upbeat on private sector bank stocks given the focus on financial inclusion.

Agreeing that IT sector has been undergoing a change, Thakkar ruled out the possibility of end of IT industry.

“Various things have come together in IT space. The base has become big for larger companies to grow,” Thakkar said.Drawing analogies from a book — Clean Disruption of Energy and Transportation by Tony Seba — he is reading, Thakkar said, “Some people who recognise that legacy business are not doing well and are in a decline phase they are getting resources, skill sets in the newer areas; those people will be able to make the transition.”

When asked about the exposure to foreign companies in Parag Parikh Long Term Value Fund — the fund house’s only scheme — Thakkar said, investing a portion of the portfolio abroad gives additional opportunities and reduces country-specific risk and volatility.

On risk of adverse foreign exchange movements impacting the portfolio value, Thakkar explained: “About 90% of exposure is hedged using currency futures. Whether rupee appreciates or depreciates it does not flow to the NAV (net asset value) to the extent of 90%.”

As on October-end, the assets of Parag Parikh Long Term Value Fund  stood at Rs 691 crore. The fund house has no plans to launch any schemes in the near future.

Thakkar advised investors to enter equity market with an investment horizon of at least five years and recommended investing through systematic investment plan or SIPs offered by mutual funds.