Manager Speak: Srividhya Rajesh, fund manager, Sundaram Growth
You seem to be bullish on the banking sector. What do you think would be the growth drivers for the sector?
We have pruned down the weight of banks in our fund following the uncertainties regarding the return of capital issue. We believe that banks may not be prepared to return capital at market-related prices since it may affect their capital adequacy norms.
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However, if they do not have to return capital at a premium, we believe that banks are undervalued. Armed with the Securitisation Act, banks have more teeth to recover their non-performing assets (NPAs).
Banks have also been beefing up their network and management information systems (MIS) through investment in technology, which should result in lower costs.
Lower manpower base through natural attrition and voluntary retirement schemes (VRS) should also benefit banks. Replacement of their old high cost borrowings that mature should help banks reduce their cost of funds.
Specific segments like retail banking are growing rapidly to prop up overall growth. Low interest rates and rising aspirations of consumers will drive the boom in the retail segment.
Oil and petrochemical companies form a big portion of your portfolio. What is the cause for optimism in these stocks?
Our weight in oil and gas, and petrochemical companies is around 27 per cent while the BSE 200 has a weight of 33 per cent in both these sectors put together.
Our holdings in oil and gas are in ONGC, HPCL and BPCL. While ONGC is trading at attractive valuations, HPCL and BPCL are engaged in corporate actions that are keenly watched.
ONGC is expected to perform well since is has been adding to its reserves rapidly in the last few years and will benefit from decontrol of natural gas prices. Reliance is likely to do well when the petrochemical cycle looks up in the near future.
How do you assess the FMCG sector?
We have been underweight in the FMCG sector. Our only exposure to the sector is through HLL, where we have only a 2 per cent weight, and ITC and Tata Tea, where we hold 3 per cent each.