The Indian stock markets have always been and will continue to remain the story of a few admirable companies, feels Ved Prakash Chaturvedi, chief investment officer, SBI Mutual Fund.
In an interview with Santosh Nair, he says that while the Bombay Stock Exchange Sensex will continue to hover betwen 2800 and 3200 in the short term, the focus will be on shares with great growth stories.
What investment strategy would you adopt to maximise returns on equity holdings?
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India has always been a story of some good companies. Buying local stocks as a whole never made sense as many foreign funds would be finding out now. If you just consider the past one year, though benchmark indices have actually dropped sharply, certain scrips such as Infosys, ITC and Zee have provided phenomenal returns. Ours has always been a bottom-top approach as far as selecting shares are concerned. We also look for companies which have a competitive edge vis-a-vis their peers. We are always looking to buy into firms with a strong growth story, but at a certain price. There are plenty of stocks that hold promise, but one also has to see the returns that these stocks can provide from the current levels.
So what kind of companies are you basically focussing on?
As mentioned earlier, my attention would be on companies that have a competive edge. We identify these by searching for five edges: First, look at those that have a native advantage. Software companies with well-trained manpower, which has good demand even abroad, fall into this category. The second is large local demand. Two-wheeler shares come under this category, where consumers are rapidly moving up the value chain. Third are the companies that feed the core sector _ which is bound to grow. Here I would place my bet mainly on power and telecom firms. Every developing nation needs highly efficient communications systems and continuous power supply. Fourth is the competitive edge which arises out of inevitables. For example, an increase in population is guaranteed. Pharma companies are the prime beneficiaries of this. Fifthly, to support infrastructural growth, finance will be required. Hence I see efficently run banks and financial entities playing an important role and gaining.
With no slowdown in FII sales, how do you see the bourses moving in the short term?
The Sensex will remain in a trading range of 2800-3200. Selective stocks will continue to outperform. However, I do not see a major downside from the current levels mainly because, as an economy, we are growing at a better clip compared with other emerging markets. The current spate of FII selling can largely be attributed to some of these funds facing redemption pressures rather than due to a negative outlook of India. Once there is an improvement in the overall global scenario, India is certain to receive a better chunk of allocations. However, other concerns still remain, such as the overall depressed global scenario and the south-east Asian turbulence, in particular. This could cap the upside for the time being.
What has been the experience of institutions as far as demat trading goes?
There are some glitches. Liquidity is improving but very gradually. One problem area is the time taken for conversion of paper shares into electronic ones. I am sure these issues will be sorted over a period of time.