Rupee fall brings back IT and pharma sectors in favour: Taurus MF’s Dheeraj Singh

Depreciation in rupee against the US dollar has improved the outlook and boosted the fortunes of information technology and pharmaceutical sectors, said Dheeraj Singh, Head-Investment, Taurus Mutual Fund.

The Indian rupee had a turbulent time recently and it touched record lows. Rupee crashed to a historic low of 74.48 against the US dollar. The depreciation in the Indian rupee is a boon for export-based sectors as they gain with the fall in the domestic currency.

In an interview to Moneycontrol, Singh said that relative weakening of the rupee against the US dollar and high oil prices are actually a blessing in disguise. He believes that a strong currency can make the economy extremely uncompetitive and India sorely needs to reduce dependence on fossil fuels for our energy needs.

In terms of strategy, the fund house follows a stock-specific approach rather than making sector-specific investments. However, overall the fund house is cautious on stocks where the price to earnings multiples are at upper end of historic bands.

In the past few weeks, the fund house has gradually increased its cash levels in  equity funds and is investing cautiously in the market. As on September-end, Taurus Mutual Fund managed average assets under management worth Rs 454 crore.

Excerpts from the interview:

A) We have had a good series of macroeconomic number releases. Consumer Inflation is contained, GDP growth has been excellent, and the government seems committed to its fiscal deficit target.

Only the current account deficit has deteriorated a bit. This has been acknowledged both by the government and RBI and some measures have been taken to address this. More steps can be expected in the future if the current account continues to pose challenges.

Relative weakening of the rupee against the US dollar and high oil prices are actually a blessing in disguise. A strong currency can make the economy extremely uncompetitive and we sorely need to reduce dependence on fossil fuels for our energy needs. Higher oil prices help in incentivising search for alternate sources of fuel and also curb unnecessary waste in energy consumption.

A) The earnings season has started on a positive note with IT bellwether, FMCG companies, and smaller private banks posting good numbers. We believe that the growth momentum in corporate earnings which started a couple of quarters back is likely to continue in this quarter too.

A) We follow a stock specific approach rather than a sector-specific approach. That said, as a sector pharma and IT seem to be back in favour. Generally, we are cautious on stocks where the price to earnings multiples are at upper end of historic bands and the possibility of earnings disappointment exist.

A) Cash levels in our funds have increased only marginally during the past few weeks.

A) We expect that in the long run, the markets as a whole would return as much as the nominal growth in GDP. In the short run, however, there will be enough opportunities to generate significantly higher returns too. This would obviously involve taking calculated risks.

A) The problems at IL&FS are serious and cannot be wished away. It is good that the government has intervened directly in the matter as it could have led to a systemic problem. A temporary liquidity problem, when extended to the entire system, could quickly turn into a solvency problem.

A) In our assessment, the probability of international oil prices hitting $100 per barrel in the near term is relatively low. However, if it does happen, we could see an adverse impact on domestic inflation which may drive the central bank to tighten monetary policy.

A) The end of FY19 is many months away, and it would be difficult to predict over that long a time horizon. However, in the near term, we do not expect further significant depreciation of the rupee against the dollar. In fact, in the very short term, we could even witness the currency retracing its recent moves and appreciating a bit. Lower international oil prices and healthier capital flows (both direct investments and portfolio flows) should help in this move.

A) Falling currency will impact importers adversely. Currently, we are facing with twin issues of higher crude and falling currency and both are co-related. All other things remaining same, this leads to higher current account deficit (CAD). With most of the government borrowing being domestic, the impact of falling currency on the fiscal math is limited. However, we should also remember that a falling currency is good for exports. So there is a natural counterbalance to some of the adverse effects of a weak currency.