Positive on retail financing, consumer-facing cos: UTI MF

As global volatility continues on account of factors such as US Presidential elections, Swati Kulkarni of UTI Mutual Fund says any correction can be used as a good entry point by investors.

Kulkarni adds that markets may see high volatility in the coming weeks due to the US elections and it will be difficult to see any policy changes in the US post the elections

Among stocks, Kulkarni is bullish on retail financing institutions and consumer-facing industries. She said that she’s underweight on commodities.

She said that she expects an earnings recovery in H2FY17 or in FY18.Below is the transcript of Swati Kulkarni’s interview to Latha Venkatesh and Ekta Batra on CNBC-TV18.Latha: What we have been asking all the experts, everybody has been telling us, almost like a chorus, that the Trump dip should be a dip that should be bought. Now, irrespective of whether he wins or not, does this rule work unfailingly?A: it is more of an anxiety before the even happens and probably most of it would get priced in by the time event happens, if at all it happens that way because as you know, the interest rates is somewhere people are worried about that the US might tighten faster though the Federal Open Market Committee (FOMC) has a different view as far as this is concerned. So, it will be very difficult to immediately see any policy related drastic changes. Similarly, if you observe the peso movement for example, the free trade agreement that North America has with Mexico, relative to that also there are tensions and the Mexican peso is depreciating fast. So, these are the events which are getting priced in and that could be an opportunity for investors in India to get into the stocks which we like because India is a domestic story and we cannot wish away the volatility that could come along with the global markets uncertainty. But if you are focused, your portfolios are focused on domestic recovery, that should be the moment to buy in.Ekta: What is your sense in terms of foreign institutional investor (FII) flows up to the event or may be even post the event assuming that Trump does come into power. We have already seen FIIs sell in 12 out of 19 sessions in the month of October itself. Do you expect that trend to continue?A: I feel that probably this is about a quarter period that we do not have much stronger trends from the earnings emerging. So, even on the domestic story it will be a second half or more so in FY18 the earnings traction could happen. So, there could be a period where the dollar-denominated assets could attract flows and as you rightly pointed out, we have seen some kind of action happening before the event. A couple of days into the event the volatility might be heightened, but again as the dust settles, people will look at the more steadier stories and sustainable growth stories. India stands out there.Latha: I wanted to ask you about the Tata Group stocks. I am not asking you to pick any specific stock, but can they be a general worry for funds and would people want to fold up or roll back a bit of their positions or a large chunk of their positions, wait for the storm to blow over and then come in and buy?A: The point is, we need to get some clarity on the long-term strategies that the group has articulated through various actions in the past one year or two years or so. So clearly, if the deleveraging is going to continue, then there is no worry at all. But we need to get more clarity on that now. If we believe that these are all listed companies with good corporate governance and an independent board there, so I think we have a fair amount of expectations that these strategies would continue. Then there should not be too much of worry if these strategies are going to continue, because individually, if you are going on a path of increasing return on capital employed, getting rid of huge asset base, if at all it is not profitable, if that clarity is important at this point of time and we will look forward to get some clues on that as everybody else.Ekta: How are you approaching the entire metals space? We do have a World Trade Organisation (WTO) on our hands to reckon with, but nonetheless, we have seen commodity prices at multiple multi-year highs. Your sense on whether it is a good time to actually buy the dip that we are seeing on metal stocks today?A: I would address this question from two angles. One is that in the recent con call of a reputed corporate private sector bank, they have said that the numbers which these companies have reported have not really resulted into deleveraging from these companies as far as their debts are concerned. So, they are not seeing any improvement in the credit behaviour post these good numbers which are essentially on the steel companies which probably are based on the protection that these companies have seen in terms of minimum input price. We, as a fund house, were more positive on zinc as a metals play and not so much on the other ferrous and non-ferrous side. So, in an absence of any structural demand which used to be there in terms of China being the large demand puller, it is a volatile space and we would avoid. Even from a tactical perspective, we have never chased so much of tactical ideas, so we think that the commodities at this point of time is more of tactical and we would be underweight on that space.Latha: You are saying that you would want clarity from the Tata Group about their deleveraging and other long-term options. So, clearly, you are not adding to that till clarity comes. And you are telling us right now that what the bankers reveal to you is indicating question marks on the asset quality turning. The end of the tunnel is not in sight. If you are excluding two such large groups, then what are you buying in the dips?A: If you really look at what is growing for example for the markets is clearly the consumer sector, the consumer finance or the retail finance because if you dissect the non-food credit growth for example, you have only agriculture, services and the personal finance growing. You have even if there is no big bang recovery which is probably much related to the economic boom and the private sector capital expenditure (Capex) picking up, on ground liquidity is going to improve and you will see recovery in terms of the smaller loans and the people who are freight operators or tractor buyers. You will see their liquidity improving and you will see a deleveraging happening maybe in a gradual way and more so on a larger platform. So, from that perspective, you will see a pick up as far as these companies or these banks which are lending to that particular segment is concerned. So, you could look at that. You could look at companies which are in the consumption for example, the automobile the discretionary consumption side, because you have strong drivers there as far as the improvement in income level or the cash in hands or people and also the consumer sentiment is going to improve because we have good monsoon, good water table and the winter crop is also going to be good. So, there are enough bright spots in the economy. You might argue on the valuation. If the growth seems to be sustainable in those areas, that is the area where people will or the investors will concentrate.Ekta: Pharmaceuticals have had a better quarter this time around as compared to the previous quarter. You think that there could be selective buying opportunities within the pharmaceutical space or maybe you would be a little wary ahead of the US elections also?A: I would see the pharmaceutical companies quarter has been mixed for some. So, some have got unexpected success in the US generic launches, but some do have an impact of the large exclusivity sales in the base. But, leaving aside these companies, specific issues in general, it is a matter of time that these companies get into a remediation process, they get an approval, an establishment inspection report (EIR) and hence, it could take about one or two quarters more and then the things will be much clearer. So, one can take a view that a volatile market, which otherwise we think that post the global issues, what we discussed initially, people might look at picking up some of the stocks in pharmaceuticals because the downside seems to be limited. The domestic market is likely to be good because the base has been quite muted for any national list of essential medicines (NELM) kind of inclusion and also the wholesale price index (WPI) related impact. So, it could be a case to case basis where you would like to keep adding.