Navneet Munot, chief investment officer, SBI Mutual Fund, manages around Rs 37,000 crore in assets, half of it equity. He spoke to Chandan Kishore Kant on the outlook for the stock market this year, the sectors he likes and his expectation from the Union Budget. Edited excerpts:
How do you view the recent correction in equity markets?
The recent fall is on the back of weak global cues. There are fears related to sovereign balance sheets of countries such as Greece and Spain. The recovery in global markets was primarily due to policy stimulus and a large part of the leverage that is in private balance sheets as well as balance sheets of the household sector. This has been shifted to sovereign balance sheets, which is one concern that market participants have. These fears have materialised in the past couple of days and impacted our markets.
The other big event will be the Union Budget, where we expect some part of the stimulus to be withdrawn. The market is looking at that fear as well.
Will last fortnight’s volatility continue for long?
The volatility was driven largely by global factors, not domestic ones. This uncertainty will probably continue for some more time. The Europe factor may weigh on market sentiment before we see a final resolution.
What are your expectations from the Budget?
There’s a realisation within the government that there is a need to go back to fiscal consolidation and, at the same time, continue some stimulus till we see private investments and private consumption gather steam. We can expect an increase in excise duties on some items and in the service tax rate. Some of the fiscal measures in the last Budget might be withdrawn.
But, of course, it will be done gradually, as there is a need to balance fiscal consolidation and keeping the recovery process undisturbed. Disinvestment could be another big theme.
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If all of this comes true, how will the markets behave?
Overall, the economy is doing well. Corporate earnings are expected to grow 18-20 per cent and valuations are fair. The equity markets will reflect earnings growth further next year. Our belief is that from here on, markets should consolidate at these levels. We have seen an expansion in multiples. With the correction we have seen in recent days, the shares are fairly valued and I do not think valuations are stretched now. There is value in some pockets of the market.
In this situation, what will be your investment strategy?
Broadly, our focus will be on individual stock-picking. That’s what we believe in, generating high alpha for the next year or so. The market is expected to consolidate and may gradually move upwards. Year 2010 will be one of consolidation. We are not that benchmark-driven. The whole idea is to find good companies which can generate good wealth over time. So, we focus more on bottom-up stock-picking rather than broader sectoral calls.
Which sectors are you bullish on?
Infrastructure and domestic consumption are two broad themes. In sectors such as IT (information technology) and healthcare, there are good companies trading at reasonable valuations.
What is your cash level?
Between 2 per cent and 7 per cent, which means we are more than 90 per cent invested.
But, at times when we see less opportunities, we might increase our cash levels. As of now, that's not the view. After this correction, there are good opportunities for the long-term.
Don't you see redemption pressure?
No. We believe that mutual funds will start receiving inflows from retail investors in the next few months. Though there have been outflows from equity schemes, I guess the trend will change in the next month or two and we will see inflows.