Sunil Singhania, CIO- Equity, Reliance Mutual Fund believes the fundamentals of the Indian economy have turned positive in last few months and a pick-up is likely going forward. In an interview to CNBC-TV18, he says concerns relating to soaring inflation, currency and global crude oil prices have settled and India is at a turning point now.
Singhania personally manages a host of funds of which Reliance Growth Fund has given 65 times returns in 18 years and Reliance Small Cap Fund provided returns of 130 percent in one year.
Cherry picking his best bets, he says financials and consumer-related stocks will be the key areas for the economy in the long-term. He is bullish on the entire auto sector and prefers betting on consumer stocks over commercial vehicles. Defensives IT and pharma are also his favourites. He has significant weightage in tech stocks and finds large cap pharma stocks attractive.
The fund house is also focussing on largecap stocks in the power generation space. Singhania believes only four-five companies will survive in power generation business. Companies with higher capacities will give better returns and one can expect consistent returns over next few years, he adds.
Meanwhile, those looking to play the midcap story should adopt a selective approach and exercise some caution as some froth is seen in few midcap stocks.
In terms of assets under management (AUM), Reliance Mutual Fund is one of the biggest in the Indian MF industry. It manages funds worth Rs 120,000 crore.
Below is the verbatim transcript of Sunil Singhania’s interview with CNBC-TV18's Menaka Doshi and Anuj Singhal. For the complete interview watch the accompanying videos
Menaka: What do you think of where we are in the market at this point in time, there were talks of a correction a few weeks ago, are we done with based on the declines we saw in the recent past or do you expect some more volatility hereon?
A: What we are seeing is basically a start of fresh economy upturn; that is what our view is. So irrespective of the election results what we had seen was, you can say, a coming together of a lot of negative economic indicators, whether it was current account deficit, fiscal deficit, currency swinging very widely and last one year a lot of these has started to correct. Now the Index of Industrial Production (IIP) numbers have started to come positive. Inflation is coming down. Thankfully for us rainfall has picked up and oil prices have started to fall.
Economically we are heading into a scenario where a lot of things have started to turn positive. We always say that India is among the very few countries where interest rate cutting cycle has still not started. In fact we are one of the very few countries where interest rates are higher than the pre living crisis rates and we have a long way to go there. From our perspective that is a key positive. With the change in government and the news flow which we are getting and the resolve which the government actually is displaying in terms of bringing the economy back on track if the economy also starts to come back on track then you might start to see positive surprises on the economy front, on the earnings front.
Menaka: When do you expect that to happen because what you are talking of now is a clear positive turn in sentiment but there is a lag between the fundamentals and sentiment? When do you think, are we at the turnaround point for the fundamentals or are we at least a quarter or two quarters away?
A: Fundamentals have also started to turn.
Menaka: You are convinced about that?
A: You see Index of Industrial Production (IIP).
Menaka: That is a really volatile measure so I am not going strictly only by IIP.
A: But then you see the PMI and then you see the fiscal deficit number, you see the currency stabilising at 60-61. I mentioned about oil; oil staying at these levels.
Menaka: So, we are at turnaround point for the economy?
A: Definitely and even on the corporate profitability front, except the capital good companies where there is a lag you see the other companies or the other sectors, we have already started to see an uptick in terms of their growth numbers. So, we are definitely there. Now, how fast we move to the next level is going to depend a lot on the government policies.
Anuj: This year has been a lot about midcap stocks, you have seen quite a bit of catch up from midcaps. The index itself has outperformed the Nifty by a good 20 percent or so and you are known to pick some good midcaps. From here on do you think the midcap outperformance is going to get exaggerated or do you think it will now perform in line with the large caps, what is your sense?
A: If you actually see the last four-five years there has been a massive two tier kind of market where the top 10-20 large caps were the ones which were getting inflows and which used to trade at 30-40p. Those were very narrow markets and that was very logical because investors were scared. They were just trying to stick to the very high quality names where the news flow at least was not negative. Now what we are seeing is a renewed confidence in the economy in the markets and therefore the rally is getting a little bit broad based.
In midcaps typically you can’t bucket them as one basket, because every stock, every sector is very different. So there is definitely froth in some of the midcaps and there is overvaluation in some of the midcaps. But there are reasonable numbers of midcaps where there is still value left and that are where we are going to focus on and one very clear thing is that investors have been trying to chase Rs 10-20 stocks. This is an advice to them that just don’t go by the price of the stock because you will end up buying stocks which are there at Rs 10-20 for some reasons. Apart from that category we feel that there is definitely opportunity in lot of them.
Anuj: I am just looking at some of the stocks, you may not want to comment on them but for example you diversified power fund as a lot of these midcap names which have done reasonably well do you get any temptation to lighten up some positions here, book some profits here and to re-enter later or do you think these stocks are good from hereon as well?
A: From a portfolio perspective everyday we tend to do something because that is what we are paid for. However, just because the stock has moved up will we sell? We will not. Our job is to see the best use of money at that point of time. So, in case we feel that relatively there are better stocks which we can invest in, there is a sense in shifting out of it. However, just because the stock has moved up we will definitely not go out of it.
Specifically on the power side and power equipment side there is a lot of questions that the PE of specifically the power equipment companies are very high. However, we are seeing PEs based on the immediate past profitability which is not a true reflection of the actual earning capability of those companies.
So, our view is that as the ordering improves and as the execution improves these companies have huge operating leverage because they are operating at 50-60 percent capacity utilisation. Therefore, earnings can surprise on the upside. So, in these kinds of companies we are a very clear, it is very difficult to buy quality companies once we are out of it. We would resist the temptation of trying to make 5-7 percent by selling and trying to buyback.
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