IV Subramanian, MD & CIO, Quantum Advisors, said valuations in the market have started looking attractive now, which is reason enough to feel upbeat about the market.He is also the Director at Quantum AMC.
The economy, too, looks like it is on a growth path, although the rural sector is still a worry, says Subramanian. However, with the government taking steps to revive the rural economy and monsoon expected to be good, the rural sector, too, will fall in place, he adds.
All this is likely to reflect positively on the earnings growth numbers. So, it is as good a time as any to stay invested in the market, says Subramaniam.
However, as a rule the house does not focus on quarterly earnings but with valuations starting to look attractive now, and earnings growth looking better than last year, one can stay more positive on market.
As a theme, he is bullish on largecap IT and consumer discretionary business. Although consumer staples may also do well, the discretionary space looks more attractive in terms of valuations, says Subramanian. He is not so upbeat on the building material space where valuations look stiff.
One can also look at the NBFC space, he adds.Below is the verbatim transcript of IV Subramaniam’s interview with Ekta Batra & Anuj Singhal on CNBC-TV18.Anuj: What next for the market? We have seen a big rally from the lows. There was a bit of consolidation and now the market is breaking out again. What is the next big trigger for the market and do you think we can sustain this momentum?A: After the corrections, which we saw at the beginning of this year, the valuations definitely look a lot better than it looked around the middle of last year even at the end of last year. I guess there are enough reasons to feel more positive on the market.From our reading, we see the economy slowly picking up and while rural continues to be a problem -- given the steps taken by the government in and around the Budget and hopefully if the monsoons are also good then the rural factor also should fall in place.So, that makes us a lot more positive on the consumption side in general. Therefore, eventually it will reflect in the earnings growth numbers. Given the attractive valuations, it is a good time to stay invested in the markets.Ekta: How much of a good monsoon do you think is already factored into the market or the probability of one?A: Given the news in and around the predictions and forecast being made I guess good amount of that is already being factored into the markets. However, having said that if you look at the valuations of certain sectors, certain stocks compared to where they were a year back and year back even the earnings growth did not look so good.Now, we are in a situation where valuations are attractive and the earnings growth probably looks lot better to us than it did last year. Therefore, we are feeling a lot more positive on staying invested in the markets.Anuj: What about earnings because we will start Q4 earnings now? There is a bit of a consensus building up that the market has started to factor in a bit of a recovery and Q4 won’t be as bad as earlier feared. Do you concur with view and how would you play the earnings season?A: We don’t focus on the quarterly numbers. So, I have no view on how this quarter would pan out. However, as we talk to companies as we get indications from them that there is a slight improvement in consumption, pricing power continues to be weak largely because commodity prices have been weak. As you look ahead and as you see the capacity utilisation of certain industries picking up, some portion of that pricing power may come back. However, definitely the return ratios would look a lot better going forward.Ekta: What is your sense in terms of the IT earnings at least this quarter? We hear from Infosys on Friday, which is a market holiday but interestingly we have Tata Consultancy Services (TCS), which comes out on Monday and that is also post markets. Your sense in terms of what we could possibly expect from these two?A: We don’t track it on a quarter to quarter basis. From our side the thesis on staying invested in the large IT companies continues to be that they are very good in terms of their delivery, in terms of the verticals they address and the fact that there is enough opportunity elsewhere in the world, which needs to be catered to.Moreover, if you look at the valuations of some of the larger IT companies, it looks lot more attractive than it was a year to a year and a half back. That also makes us a lot more positive on these companies.Anuj: What is your big sectoral call? From the long-term investment point of view, where do you think the best amount of money is going to be made? What is going to lead the market?A: We are very positive on the consumption side. Therefore consumer discretionary is something which we like. So, there are two things over here while as a sector consumer staples may also continue to do well but from a valuation perspective, I find consumer discretionary a lot more attractive, which includes automobile stocks, two-wheelers, four-wheelers etc.Since, we are always focused on valuations for us that segment appears to be a lot more attractive and looks like you can make good returns over there compared to sectors where the valuations look high. So, the areas where we are not very comfortable are consumer staples and building materials. These two segments we still find the valuations to be pretty stiff.Ekta: What is your sense in may be a couple of these consumption stories, a couple of the agri related stocks the likes of Mahindra and Mahindra Financial Services which is a non banking finance companies (NBFCs)? It is very linked to what happens in terms of the monsoon. Would you be a buyer despite the fact that may be they have suffered from asset quality issues in the past but based on the probability of a good monsoon they could be turning the corner?A: I have no comments on a specific stock but as a theme we do like the NBFC space. In some of these companies, yes the asset quality has been weak but you can still factor in those kind of assumptions when you forecast the earnings potential of these businesses. Even if you assume a higher slippages if the valuations become attractive at some point in time, we will have no issue in investing in these stocks.
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!
