Moneycontrol
HomeNewsBusinessMutual FundsMore FIIs sell stocks, more you should buy: S Naren
Trending Topics

More FIIs sell stocks, more you should buy: S Naren

The upturn in oil prices bodes, which will likely continue for the year, bodes well for equities, says ace fund manager Sankaran Naren, CIO of ICICI Prudential AMC.

March 01, 2016 / 21:35 IST
Story continues below Advertisement

Your browser doesn't support HTML5 video.

The upturn in oil prices bodes, which will likely continue for the year, bodes well for equities, says ace fund manager Sankaran Naren, CIO of ICICI Prudential AMC.In an interview with CNBC-TV18, Naren said that while it was difficult to say where the market will bottom or whether it has bottomed out, sentiment indicators showed so."We believe this is the best year to put money into equities. The more FIIs sell, the more positive you should be," he said. "The economic cycle is bound to improve this year."As CIO, Naren oversees investments of Rs 1.64 lakh crore of assets that ICICI Prudential AMC, the country's second largest fund houses, manages.Below is the verbatim transcript of S Naren's interview with Latha Venkatesh & Sonia Shenoy on CNBC-TV18.Sonia: It's been a turbulent phase for us since the start of the year. Do you think the trend is still on the downside?A: The trend is driven by global developments and our view for the year has been that if oil keeps going up, you will see the markets recovering. However, given that oil has recovered almost 20 percent, the markets have recovered globally.We continue to believe that over the year, although one is not sure of the next few months because of seasonal considerations, people believe that oil will slowly go up through the year which means that the backdrop from a market point of view on global flows will also improve through the year except no one is clear because of seasonal demand drops in oil in March-April. Therefore, I would say that we have always believed that this is a year to invest because economic cycle is at its bottom. The non-performing loans (NPL) issues which have existed in the system over the last five-six years are coming out this year giving opportunities for investors to invest into negative pessimism and we continue to believe that this is a best year to put money in equities, the more the foreign institutional investors (FIIs) sell the more positive you should be because the economic cycle is bound to improve over the next two years.Latha: The global selling has been brutal. Would you say that we are at the lows at about 6,800 - may not stocks get cheaper, may not capital preservation be a thought?A: It is very difficult to predict the bottoms or the tops and from a behavioural angle what is clear at this point of time is that with FIIs having been selling aggressively and local flows in January and December were half of the flows of the previous period. Behaviourally, we are in a period where you should be investing in the market. Having said that only subsequently later next year we would know when the bottom this year was reached and from that point of view it is difficult to say whether the bottom has reached but sentiment factors do seem to suggest that you have to be investing at this point of time and the effort that is involved in putting new money to work in equity at this point of time is much tougher because there has been no category of funds which have given returns in the last one year. So from that point of view getting money is not easy but this is a period to be getting money.I will not be able to tell you what the bottom is because I do not know whether the bottom has happened. The bottom will happen if there is a negative global event which the market is not factoring in, happens - whether that happened in 2008, that happened in World Trade Centre. It didn't happen in 2011. However, in 2011 the market bounced off a bottom without anyone realising that it was a bottom. Therefore, I am hoping that this will be like 2011 and not a year like 2008.Sonia: It is hard to predict what the bottom of this market is but do you have any sense of what kind of recovery process we are in for. Will it be a v-shaped recovery? Is there anything to suggest that or do you think it could be a long drawn painful time correction that this market will get into?A: It doesn't appear to us that we are going to see a v-shaped recovery because for a v-shaped recovery the initial part of the V is also a problem and this government is clear that we do not want to see, so they worked hard to try to calm investors on issues like NPLs and other issues. So I am of the view that it will not be v-shaped and I believe that it looks like you won't see the first part of the V also. We want the second part of the V, not the first part of the V. So I think we would have a moderate bottoming formation rather than a V unless there is some global event which happens, which becomes uncontrollable and then it would be a global selloff. We attach low probability to it but we could be wrong.Latha: Even assuming that we are in the recovery phase both in the economy and in the market, what would spearhead the recovery, stock wise or sector wise?A: If you look at most conventional recoveries in India. One, you have a capacity utilisation number which is very low, so over the next two-three years you can see a big increase in capacity utilisation number without much of capex which leads to operating leverage - that earning increase can get higher discounting and that is how we expect the market rally to happen. However, from the point of view of an economic cycle we have always believed that the first part of the cycle as interest rates going down to lower levels, the problems in the economy is slowly coming off and then a leveraging cycle happens. Surprisingly last year despite Reserve Bank of India (RBI) cutting 1.25 percent interest rate, we hardly saw a drop in government securities (Gsec) yields and we continue to believe that in 2016 the first returns have to come in a big way in fixed income where yields fall substantially and then you have a leveraging cycle. This is how we look at it. So in either case we think 2016 is the bottom and there has to be an economic cycle improvement, of course for fixed income investors the short-term view looks much better because the long-term view in equity does look better than fixed income but in the shorter run fixed income looks attractive because without a bottom formation of yields in fixed income, it looks that you cannot have a big returns in equity.Latha: We saw the 25 bps of yield coming yesterday. Did you see it replicate in the commercial paper (CP) and the certificate of deposits (CD) market? There the yield spiked so much over the last eight weeks?A: I think out of those eight weeks, two weeks has been taken care of and traditionally March is a tight month for money and the problem is that the government's fiscal situation particularly the central government's fiscal situation is too good that even in the month of February the government balances have been very high this year and that is what my fixed income colleagues tell me. Normally, government's balance improves from March 15 onwards but this year it looks like that even in February the government's fiscal position was comfortable. So we have a strain situation whereby the government's good fiscal position leads to liquidity being weak in other parts of the economy. Therefore, I believe there is scope for entire eight week rally to get corrected but only about two-three weeks have been corrected, still the yields are not as low as what it was eight weeks back and you cannot have a durable market rally with ten year at 8 percent and three months CPs at 9 percent for many of the corporate. I do not think many of the high credit quality corporate; I do not think that can happen. So there is no choice in the cycle for first rates to go down before you see a durable equity rally and that is what we believe, of course you can see a big turn in FII sentiment and you can have a rally but any rally which is built on local economic cycle always makes it much better.

first published: Mar 1, 2016 10:37 am

Discover the latest Business News, Sensex, and Nifty updates. Obtain Personal Finance insights, tax queries, and expert opinions on Moneycontrol or download the Moneycontrol App to stay updated!