With the macroeconomic situation favouring India and the political mandate in favour, every correction is a good buying opportunity, says Swati Kulkarni, vice-president and fund manager, UTI MF.
She believes valuations of banking stocks continue to be supportive and the sector is likely to outperform. From a growth perspective, private sector banks are better placed in terms of capital adequacy, but from a valuation point of view, large public sector banks may gain more.
She also sees initial signs of a pick-up in medium-to-heavy commercial vehicles (MHCV) segment in the auto space.
Below is the verbatim transcript of Swati Kulkarni’s interview with Anuj Singhal and Ekta Batra on CNBC-TV18.
Anuj: What is your call now on the market? We have seen a big surge and a decent correction now, do you think it is a good time to make an entry again in the market?
A: 3-4 percent here and there, we cannot time the market that well but given the fact that you have macro on your side, you have a political mandate on your side and also in the Budget what you were expecting that the spend on the construction side – the first step to come from the government is also supposed to be there and we are also seeing the ease of business that is being worked out. So from all this perspective, the results of these are likely to be expected over the next two-three years not immediately as we know but the market always expects ahead of time and hence the corrections are a good time to enter.
Ekta: If you had to be most bullish on one particular sector from current levels though it might be even pharmaceuticals, which has seen a strong run up, which one would it be for you to possibly assess the best returns from current levels by the end of this year?
A: It is a difficult question because being a portfolio manager, we tend to take a diversified approach but if you still want me to give an answer I would say that some of the banks which have corrected maybe from a one-year perspective as we expect the credit growth to pick up, first initially by the step by the government and then the private sector coming into the same space. I think banking is somewhere the valuations are still supportive and that could be the sector, which would outperform in next one year’s time or so.
Ekta: Would that be private or public or just any sort of valuation play on the banking space?
A: We are looking at from a growth perspective and when it comes to growth, I think private sector banks are better placed in terms of capital adequacy and also in terms of their overall approach towards lapping on to the growth. So from that perspective the growth can be still seen in the private space but from a valuation perspective perhaps there is the large public sector undertaking (PSUs) where you have a better capital adequacy, the gains could be there than the typical private sector banks which have already run up in terms of these expectations.
Anuj: Two sectors where we have seen quite a bit of correction and in fact correction would be an under-statement here. Metals and oil and gas, what kind of view would you have on both of these from portfolio point of view?
A: From metal sector, it is a globally driven sector and as we know that China is shifting focus from a domestic investment oriented economy to a domestic consumer oriented economy. So being a largest consumer per se, the demand for metal from China is an issue in the short-term and that is likely to be there for sometime to come. Also, Europe is not doing that well. So from that perspective, I think overall the pressure on the metal prices will remain. So that is one sector, which we think that despite the valuations looking in terms of six times EV/EBITDA they are still not attractive from the growth returning in that sector or the pricing power coming back to that sector as such.
As regards to oil and gas, the initial momentum coming out of the reforms is already seen so now the next step is how the subsidy sharing becomes more and more transparent as far as the upstream is concerned and how crude stabilises. So from that perspective, both these sectors might remain value sectors for sometime but they are certainly not the growth sectors for the near-term as such.
Ekta: Just one quick question about the auto space, how would you approach that?
A: In auto, we have initial signs of a pick up in medium and heavy commercial vehicle (MHCV) and while the discretionary space of auto seem to have seen some kind of a steady growth not so much of a pent-up demand there but we have preferred to play this place through auto ancillaries basically the companies which are likely to gain from a pick up in the overall numbers of the original equipments (OEs) rather than playing on a specific OEs as such and that has worked well because typically the auto ancillaries will see their production schedules get filled up before we come to know about the OEs numbers in terms of monthly volumes as such. So that space, we think still looks attractive as the overall cyclical recovery picks up because there are plays, which are partly auto plays and partly non-auto plays in terms of industrials. So we are looking at those where there are technologically these companies have some entry barriers and that is how we have played auto.
While two-wheeler space has shown a resilience in demand of-late we have seen the numbers have – in terms of the monthly numbers, they are not that enthusiastic mainly because the rural side of the demand is tapering off compared to what we have seen in past two-three years or so. So that has to pick up and that is a matter of a watch, we need to be there in that particular area as such.