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India still in good spot among EMs, DMs: UTI MF

The recent fall in Indian equity markets is due to weak earning season and worries of a poor monsoon season, says Swati Kulkarni, executive vice president and fund mananger, UTI MF.

Speaking to CNBC-TV18, Kulkarni says both the IT and the pharma sector are good investment bets for now.

Her bullishness for IT is led by the increase in digitization business .

“For IT particularly, the growth rates have come off but there is a digitisation which is going to drive the business growth. Sometime once the Fed starts tightening, the dollar might remain strong and hence, you could benefit off the currency depreciation and these sectors, probably IT and pharma, they will tend to benefit out of that.”

Below is the transcript of Swati Kulkarni’s interview with Ekta Batra and Nigel D’souza on CNBC-TV18.

Ekta: You join us on what has been quite a difficult week for the markets as well a difficult day. What have you made in terms of what might be plaguing the markets in the past couple of trading sessions and do you think that the foreign institutional investor (FII) outflows are possibly going to increase going forward?

A: Clearly a weak earning season and the worries about the monsoon is what is hitting the market in the near-term. While it is tough to take a call on the outflows from FII, it is better to look at the relative fundamentals and from that perspective, I believe that India still stands ahead of most of the emerging markets and most of the developed markets as well as far as the long-term potential is concerned.

So, it is really very difficult to take a call especially when Fed action is due somewhere in September, that what will actually happen as far as the FII outflows is concerned. What we are hearing from the market is the long-only funds are definitely looking at certain pockets wherever the valuations have turned a little bit acceptable and still the asset allocation is yet to happen as far as the exchange traded fund (ETF) allocation is concerned.

Nigel: The Bank Nifty is not doing well but we have seen IT as well as pharma, they have been that defensive sector that normally money rushes, would you find that attractive at these levels?

A: For IT particularly, the growth rates have come off but there is a digitisation which is going to drive the business growth as such and also in terms of if you assume that sometime once the Fed starts tightening the dollar might remain strong and hence you could benefit off the currency depreciation and these sectors, probably IT and pharma, they will tend to benefit out of that.

In terms of pharmaceuticals, especially the ones who are targeting the US generics market, the pipeline is something which attracts investors and a reasonable valuations considering the pipeline would actually suggest that we could look these as defensive. Of course, there is a risk.. Hopefully these will get addressed and they do not convert into import alert as such and hence that space is looking attractive; both IT and pharma from a defensive perspective in these volatile markets.

Ekta: How important is any sort of news in the minimum support price (MSP) from a market perspective?

A: If you look at from an inflation perspective for consumer price index (CPI) we have favourable base till September-October, so we will first see CPI coming down from the current levels and MSP will not be too much of an impact as far as the food prices are concerned. The more impact could be from the monsoon related worries which are talked about; the possibility of a below normal monsoon. But in terms of the impact of the rural demand as such, some bit of slow down is already witnessed in the discretionary side on consumption. Still the staples are not yet impacted as far as the rural demand is concerned. So, MSP is now being taken more from a having a fiscal correction point of view rather than that affecting the ultimate corporate earnings as such. So, I would like to wait and see what the impact could be on the inflation. It will not be immediate. The immediate impact on the expectations on the inflation could be more from the monsoon. Not so much from the MSP as such.

Ekta: Would you be really wary of the midcap index or are there any select stocks that you would look at, at this point?

A: In select stocks, definitely the valuations have turned attractive. Something which we were finding it very difficult to look at which has corrected about 20-25 percent and the midcaps where we have certain competitive advantages and growth is clearly visible, we are looking at this. So there is a selective approach. But having said that, clearly at the indices level, midcaps have moved to a premium as far as the valuations are concerned versus the largecap indices. So, I would avoid saying that in general midcaps have become attractive because the corrections are similar in the largecaps also. Like you have many largecap auto names which have corrected maybe about 10-15 percent. And across the board, of course, banks have corrected about 10 percent. So, we have attractive largecaps also, so I would take a selective approach as far as the midcaps is concerned and not an over board at this point of time. 

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