Monsoon will play a very vital role in the performance of companies which are agri focussed, Sunil Singhania, of Reliance Mutual Fund said in an interview to CNBC-TV18
The Indian economy, which took 68 years to hit the USD 2 trillion mark, could well double in the next 8 years, which will present a tremendous opportunity for investors especially in companies which are domestic driven, Sunil Singhania, CIO-Equity-Investment at Reliance Mutual Fund said in an interview with CNBC-TV18.
Domestic companies could well 18-20 percent earnings growth and with goods & services tax (GST) in the offing will lead to shifting from organised to unorganised will lead to compounding growth in most of the domestic-driven sectors in the next 10 years, suggested Singhania.
“Some of these companies might be 10x their size in the next 10-20 years. This happens to a lot of companies across the world. We are optimistic where we could see a growth rate of 18-20x year after year,” he said.
Monsoon will play a very vital role in the performance of companies which are agri focussed such as fertilisers, irrigation, autos, tractors, as well as sugar.
India Meteorological Department (IMD) in its first monsoon forecast says rainfall will be 96 percent of long-period average with a 38 percent probability of a near-normal season after two successive years of drought before 2016.
“On the agri side there is some volatility based on monsoon, but thankfully the last year monsoon has been good and the forecast for this year monsoon is also robust. In the next 2-3 years, a lot of subsidies in the fertiliser space will go away which will benefit companies,” said Singhania.
Also, the government want to enhance rural income, raise agricultural productivity and ensure India is self-sufficient which bodes well for fertiliser and agro-chemical sector.
“Global companies want to diversify their sourcing out of China as there is a huge clampdown of pollution as far as Chinese manufacturing is concerned. And, as far as knowledge based chemical space, India has an advantage over China,” said Singhania.
Commenting on NBFCs there are quite a few companies which will benefit out of the recovery both in the rural side as well as infra space (companies in CV finance companies).
“We are also positive on the shift of physical savings to financial savings. Hence, companies which are engaged in asset management, life insurance, as well as NBFCs should also benefit,” he said.
Below is the verbatim transcript of the interview.
Anuj: Even at all-time highs we are still seeing consistent inflows and in fact the inflows are picking up but the obvious question is how do you manage these kind of funds with the market at all-time highs and clearly valuations not looking good?
A: Very clearly it is happening that the Indian investors are matured and irrespective of the market levels, the systematic investment plan (SIP) inflows continue and in fact grow.
One good thing is that because of the systematic SIPs and the gradual inflows, it is much more easier to manage because if you see the market cap of the Indian equity markets now more than USD 1.5 trillion and the monthly inflows are like a billion dollars. So compared to the overall marketcap, the flows are not very significant. Yes, if you look at the historic past, the flows look quite large but as we move forward, this flows are only going to get stronger. I think it is not tough because the flows are gradual and it is business as normal.
Latha: Business as normal, is it? It does look like business is abnormally good. Retail investors are always the last to board the bus, do you think there is anything different in the way in which they have approached the market now or do you see them getting off the bus, the moment, there is something that can go awry in the global markets?
A: Historically whenever we saw markets being very buoyant, we had flows which used to come in a lump sum mode altogether in three-six months. This time though the flows have been strong, they have been very measured and very gradual.
So we have been seeing these flows, over the last three-three and a half years, consistently month-after-month. So it is not that in one month we have about Rs 50,000 crore which is a sign of euphoria. It has been like Rs 5,000-7,000 crore month after month for the last three-four years. That makes this very different.
The second obvious reason is that this time we are seeing a sustained improvement in the economic scenario, we are also seeing sustained improvement in the global scenario and though one can argue that on a historic basis the P/E is slightly higher than normal, we are not in euphoric zone where the P/E has gone above 30 or 40.
Yes, in select stocks there is over-optimism but for the market as a whole, we might be slightly expensive compared to the 10-year average but it is not definitely over enthusiasm or euphoria.
Sonia: We were speaking to Vikas Khemani of Edelweiss just a while back and he suggested that in the domestic facing companies, he won’t be surprised to see 18 or even 20 percent growth going forward in earnings particularly. Are you also as optimistic about the domestic facing sectors, the cement companies, the auto companies, paint companies etc?
A: When we look at the historic numbers, these 18-20 percent seem to be high but you look at the population of India, look at how the standard of living is improving and we just have to compare with what has happened in some of the developed countries like US, China, Japan, Europe where sales in particular segments has grown 100 times in a matter of 30-40 years as the economy develops.
So from India perspective also, a USD 2 trillion economy which took 67-68 years doubling over the next 8 years is going to be huge opportunity.
On top of it we have the shift from unorganised to organised because of enhanced efficiency as far as taxation is concerned, advent of goods and services tax (GST), a lot of these sectors are set for good compounding growth year after year for the next ten years. So some of these companies might be 10 times their sizes in the next 10-20 years. One never knows and that has happened in the recent past even in India and it has definitely happened in a lot of companies across the world. So we are very optimistic that there are quite a few companies where we will see that kind of growth year after year.
Anuj: Couple of sectors which have made you big money in your some of the specially midcap and smallcap funds, fertilisers and select NBFCs, I know you are being very positive on gold finance but from hereon, are you still backing these stories?
A: On the agricultural side, there is a volatility based on the monsoon because we are still dependent on monsoon to a large extent. Thankfully, the last year’s monsoon was pretty good and the focus for this year’s monsoon is also pretty robust.
Then we have this sector, you can compare it with what was the case with oil marketing companies (OMCs) where there was subsidies and it was an inefficient way of distributing subsidies and the government completely revamped that sector and we have seen what OMCs have done. I think the same thing can happen over the next two-three years in the fertiliser space where there is a lot of subsidy, the subsidy is given in a very inefficient manner and there have already been pilot programmes as far as doling out the fertilizer subsidies and use of DBTs. So maybe going forward, a lot of these companies will benefit out of that.
Also, the government is very clear that they want to enhance the rural income, they want to increase agricultural productivity, they want to ensure that India is self-sufficient as far as food is concerned. So all this bode very well for the fertiliser as well as agrochemical sector. So we continue to be quite optimistic there.
I would go one step further. In all chemicals India is now emerging as one of the very pre-eminent locations from a sourcing perspective. People want to diversify or global companies want to diversify out of China, there is a huge clamp down of pollution as far as Chinese manufacturing is concerned and specially in the knowledge based chemical space, India has an advantage over China very clearly. So I think the whole chemical space looks quite interesting and though a lot of companies have rerated, there is a possibility of earnings surprises as we move forward.On the non-banking financial companies (NBFCs) front, yes, there are NBFCs, which have become the fashion of the day and which are trading at a slightly higher valuations but there are niche NBFCs, you did mention about gold finance, we continue to be positive, there are quite a few NBFCs which will benefit out of the recovery in both the rural side as well as the infrastructure space so maybe commercial vehicle finance companies should benefit. We are also very positive on the shift from physical savings to financial savings. So in companies which are engaged in asset management, life insurance, wealth management, those kind of NBFCs should also benefit. We continue to be constructive there.