Moneycontrol
Last Updated : Sep 12, 2016 01:34 PM IST | Source: CNBC-TV18

Next 1 month will provide good buying opportunities: Sundaram MF

Krishna Kumar's advice to retail investors is to top up their systematic investment plans with lumpsum investments when there is a big correction in the market. He does not see a significant correction coming in the short term.

The ongoing correction is a good opportunity for long term investors to enter the market feels S Krishna Kumar of Sundaram Mutual Fund. He sees the market throwing up some good opportunities over the next one month.

In an interview with CNBC-TV18, Kumar says he is raising cashing levels across schemes to participate in some of the interesting initial public offers.

Kumar has a positive view of L&T Tech, whose IPO opens for subscription today. 

He says L&T Tech is in a niche space and expects a lot of outsourcing in engineering technology, which the company will be well placed to benefit from.

His advice to retail investors is to top up their systematic investment plans with lumpsum investments when there is a big correction in the market. He does not see a significant correction coming in the short term.

Kumar expects the US Federal Reserve to raise rates this December. But he does not see that as a major concern for global markets. Even when the Fed does decide to raise rates, the increase will be accompanied by dovish statements, Kumar says.

Below is the verbatim transcript of S Krishna Kumar’s interview to Anuj Singhal, Latha Venkatesh & Sonia Shenoy on CNBC-TV18.

Latha: What have you made of this downturn? Were you in cash before this downturn and will you look to deploy it right away?

A: We have raised little bit of cash and that is essentially to participate in lot of good IPO offerings that have been coming through and not necessarily call on the market per se. As far as the kind of correction that we are seeing today, it is little bit of kneejerk reaction. The US data definitely is not strong enough to warrant immediate rate hike. There are noises both sides.

What is worrying the Fed is just the fact that the core inflation has been above 2 percent for some time and there are voices that Fed may move for another rate hike. So, our view is that the normalisation process has to happen as the economy also gathers steam, so it eventually has to happen.

We probably put it around the December-January when the rate hike could come through, but whenever it comes I think it is going to be another one, which is accompanied by lot more dovish statements in terms of we will watch it as it goes and we will watch for data and stuff like that.

The markets are probably little running ahead in terms of sell-off. We would look at this correction as a good opportunity for investors to come in terms of those who have missed out on the previous occasion. Over the next one month it would be a good opportunity for investors to put the money back in to the market.

Anuj: From retail investors point of view what is the best strategy? Of course systematic Investment Plan (SIP) has worked in this market that should continue but at lower levels would you advise top-ups as well in mutual funds (MFs) and how should you approach this market?

A: While SIPs is something that investors may continue to do, but when markets correct significantly investors should top it up with lump sum investments to boost overall returns. However, I am not sure whether we are heading into a phase where we have significant correction. So, one has to be quite quick to react to corrections and put in a lump sum investment that is our view.

Sonia: You did mention when you started the conversation that you are raising some cash level because you are interested in some of the new initial public offerings (IPOs) that are coming in? We have one opening today which is L&T Technology Services (LTTS), we have the ICICI Prudential Life IPO that is opening on the September 19th what kind of potential do you see in both of these spaces?

A: While we do not talk about stock specific issues, since there is IPO so we can probably talk. L&T Technology is into a niche engineering services, which is not the mainstay of the IT services space. It is a very differentiated play in terms of what it aims to do and the kind of market that it is trying to address. That is a very different opportunity that will play out.

A lot of outsourcing happening on the engineering technology services and this company would be well positioned to benefit from that trend. This doesn’t have anything to do with the largescale ramp down in banking, financial services and insurance (BFSI) and other segments of the IT services, which are affecting lot more other mainstream players.

On the other issue, which is on the insurance space, there is huge long way to go for the insurance sector in India. There are lot of statistics that you would have seen in terms of how under insured we are and the kind of penetration that is possible. So, these are two very niche opportunities that are available to investors to be a part of the growth in the long-term growth. That is why we would believe that these would create value for investors in the medium-term.

Latha: Midcap space outperformed the heavies in the past several weeks. Do you think that outperformance will now be something that you have to pay for if the downturn continues? Are there more vulnerabilities in that space?

A: This correction has been led by an expectation that the exchange traded fund (ETF) money that has come in would pull out or would reverse in the near-term given the uncertain scenario on the global Fed. So, having said that, the selling is probably going to happen in the frontline stocks where the ETF, the passive money has come in. So to the extent the main damage as we could see on the Sensex and the Nifty has happened is happening.

Midcap will, in time, also correct if the current correction last for more than a week and into say a month or two then midcap also will definitely see some selling as people try to rebalance their own portfolios and move into largecaps, which probably have corrected more. So, that would be the kind of expectation that we would have, so that depends a lot on how long this phase of consolidation in the market continue.

I do believe that there is no major data point that could come in the near-term, which could move market either ways, so after the Fed event, I think the most important event is the earning season to watch out for. So, markets could be more in a band in the next one month so to say.

Anuj: Does the market leadership remain with the banks and consumption?

A: Definitely, consumption is a very strong space at this point in time. The urban consumer has been holding up very nicely. The rural economy is kind of starting to do better with the good progress of the monsoons and July and August sowing has been good. So, post harvest, the rural India will also join the consumption binge and over the next couple of years we should see this consumer story playing out pretty nicely.

Along with that, if you look at financials, it is a very no–brainer way to play the India story. If you look at Bank Nifty as an indicator for any financial services fund, these have been clearly outperforming the Nifty by a significant margin and that in particularly in phase of economic expansion.

Financials would definitely be a very nice way to play the India story. The composition of Financials may change away from public sector undertaking (PSU) corporate lenders to probably the private sector lenders as such have been happening the last one to two years.

Also with lot more growth coming in the form of non banking financial companies (NBFCs) who are being well run, well managed, having good return ratios and ability to contain a stress and diversified as required along with them the rural financing the small finance banks (SFB) stories are playing out.

There is huge opportunity at the bottom of the pyramid for many incumbents and new players. Also, you mentioned about the new IPO and the insurance space, so similarly there are many new opportunities that are opening up in the financial space be it the SFBs or micro finance companies or the insurance play. So, all these -- in narration to the new generation NBFCs that we are seeing as many broking companies got listed -- have built a huge NBFC book in the last five years.

So, many of them are attractive and will see a lot more interest from investors both local and overseas foreign institutional investor (FII) and foreign direct investment (FDI) into those companies. We see financials definitely along with consumer being a very good way to play the domestic market and which is also in-line with the thinking of being more inward looking as global uncertainties continue to be there.
First Published on Sep 12, 2016 09:54 am
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