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Last Updated : Feb 09, 2017 04:08 PM IST | Source: CNBC-TV18

Indian mkt linked to EM trends; like agri, NBFCs: DSP BlackRock

The performance of Indian stock market should be looked at not just in isolation but also in the context of how emerging markets are doing, said Anup Maheshwari, Executive Vice President of DSP BlackRock Investment.

The performance of Indian stock market should be looked at not just in isolation but also in the context of how emerging markets are doing, said Anup Maheshwari, Executive Vice President of DSP BlackRock Investment.

In an interview with CNBC-TV18, Maheshwari talked about the RBI's monetary policy decision yesterday, which he termed, surprising and its implications for the market.

On the investing outlook, the noted fund manager said at a sector level, only the beaten-down IT and pharma spaces offered value but added that a stock level, one could find great opportunities in retail banks, NBFCs, two wheeler companies and the agri space.

Below is the verbatim transcript of Anup Maheshwari's interview to Latha Venkatesh, Sonia Shenoy and Anuj Singhal on CNBC-TV18.

Anuj: It is the domestic money which has kept this market afloat. We have seen Rs 14,000-15,000 crore of inflows over the last one month into market, do you see this kind of trend continuing and more importantly continuing to support the market?

A: Yes, we certainly hope so. Our business depends on it. So we are definitely going through a bit of a change in trend as far as asset allocation is concerned and it is bit of a circular phenomenon, which is as markets do well, more money comes in and that chain continues.

However, just given the level of exposure to equities at the moment, the general level we are pretty hopeful that it will continue to come through.

Latha: How has the monetary policy changed the grammar of investing, higher yields, stronger rupee, how does it impact stock picking or even stock performance?

A: At market level as a whole, it is high interest rates are not a good thing and we were little surprised with the RBI action yesterday it definitely puts a bit of a break on the cuts that the market was expecting. So to that extent, it is not a good thing for markets because normally lower interest rate environment is pretty good for valuation expansion at least.

That apart, the other side of the coin is earnings growth. It has been fairly decent. A lot of people were very concerned about the last quarter but hasn’t turned out to be as bad and more importantly, the commentary on this quarter and the future also seems reasonably okay. So I think we are on the earnings growth recovery but the interest rate action unfortunately is something that will probably keep a bit of a cap on valuations.

Sonia: What about your view on the market? I understand that you decide the market mood everyday depending on which side of the bed you wake up from. So today and these days are you waking up from the right side?

A: That was just a joke. There are some points in the market where you don’t have a very strong view just given the mix of valuation, the index level.

One thing that is consistent through all markets is you always have bottom-up opportunities and this is no different. This is the market where you need to be still very stock specific. That is a general view you will get across most people you talk to.

There are enough companies at various points in their business cycle that offer you upsides and much above the market. At an overall index level, you tend to look at it little more top-down at overall earnings, overall interest rates, overall growth and from that point of view and looking at the valuations, it looks more modest in terms of market upside.

Having said all of that, on a relative asset basis, equity still looks probably the most interesting to sit through over the next three-five years. So to that extent, we are still very positive on equities. However, it is not a valuation where it is very obvious immediate upside that you are likely to see.

Anuj: The issue with bottom-up stock pickers market is that you need to discuss a lot of stocks and unfortunately you will not discuss any stocks with us but what themes will work this year? Any big themes that you are playing right now?

A: Just at a sector level, we still like the banking sector, which is a pretty important part of the market. So it is very important that continues to perform.

Having gone through the last quarter or so and having seen all the volatility around it, the banking sector is emerging only stronger. So the retail side continues to grow very well. On the corporate book, we are hoping that there will be some resolutions and the recoveries. So banking continues to be a good space to look at. Energy we continue to like quite a lot. The big surprise to us has been the whole consumer durable space which came out very strongly from the whole demonetisation process. So that is something to also rethink about a little bit.

The pockets of the market that are cheap are clearly IT, pharma to some extent and we are hoping that at some stage, they will also lend some support to the overall valuation. So they are cheap but not giving enough growth right now for people to take a very clear view on it.

The point I am trying to make again is there are always some sectors that offer future potential and some that are clearly looking very good for now.

Latha: You spoke about consumer durables, the two-wheelers complained a lot during the demonetisation and the numbers also showed up. Is that a space that will attract you now or will you prefer the four-wheelers?

A: Both spaces should show a bit of a comeback. The four-wheelers we didn’t see too much of an impact anyway but the two-wheelers will be more linked to what happens in the agriculture side and we are pretty optimistic about agricultural recovery or a spending recovery from rural India over the next six months or so.

So that extent it will help two-wheelers at some stage. The only issue with two-wheeler is penetration is already fairly high so they need other avenues of growth including exports. So that is another part of the strategy that we have to be fairly convinced about.

Sonia: One of your funds, which we track very closely -- we have been tracking all of them but one of them that has done brilliantly is the smallcap and midcap fund. I know you don’t want to talk about funds particular but in this fund you have a very high exposure to the non-banking financial companies (NBFCs) space in names like Manappuram, Repco Homes etc and this morning we have seen some fabulous numbers coming from Manappuram. So already your fund value must have surged but in general, you think that for people who perhaps missed out on the rally in NBFCs, is there still more scope?

A: So NBFCs have been clearly the biggest beneficiaries of scenario of lower interest rates and that is something because the asset side is a lot more sticky in terms of their lending rates so whenever interest rates were declining, it just helps them fairly significantly.

They have had this sort of phenomenon for the last three years or so which is why it has become such an sort after sector.

Last quarter was obviously a big blip there because people weren’t sure how -- since it is fairly cash based in the profile of the individual borrowing from NBFCs could have got affected by demonetisation.

Having seen the last quarter results and the fact that they have come through reasonably okay, there will be some more confidence coming back again into NBFCs and have to be a little more stock specific there but there are pockets of opportunity clearly in NBFCs that are available. So it is an interesting space to look at.

Latha: Is there any specific space you like in them, the pure NBFCs lenders or is it home lenders or is it MFIs, small banks?

A: Specialised housing finance NBFCs -- we like that segment quite a bit. The gold finance companies we have to also keep one eye on gold prices themselves, it matters a lot to their economics. So assuming gold prices stay steady there, some good opportunities are there -- very cheap.

The part that we are isn’t more circumspect on is the microfinance NBFCs. We think the space is still big and there is scope for growth but not everybody will be able to do as well.

Anuj: What is it that this market could be running a bit ahead of itself? The numbers look better than expected but there is still bit of a doubt that some of this could be especially post demonetisation a bit of a hurry to use the cash and that is why maybe some of the numbers might be looking up and the test could come in Q4 numbers. Is there still a bit of a risk over there?

A: It is interesting because if you look at the performance of our market, it is not only linked to our domestic flow. If you look at the last one year, there is higher than 70 percent correlation of our market with the emerging market trend and the same thing has happened in the last one month. It is emerging markets that have recovered post the whole Trump fall and India has pretty much moved in line with that. So it is not like we are moving in a very unique direction relative to the rest of emerging markets, there is a bit of a link that exists even now and flows of foreign funds into EMs are making an impact as far as we are concerned.

So we are keeping a close eye on that trend as well because if EM start seeing outflows, we will automatically correct to some degree irrespective of what short-term fundamentals we are displaying over here.

So I think that seems to be the bigger driver right now than just domestic factors.

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First Published on Feb 9, 2017 10:34 am
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