 "Can't be bullish on equities due to signs of steeper rupee fall: Shardul Kulkarni")
With the fifth season of the Smart Portfolio heading for a close, Business Standard begins a series of interviews with the six fund managers who participated in the exercise. With net gains of 21 per cent so far, Angel Broking's Shardul Kulkarni leads the six participants. In an interview with Jinsy Mathew, he talks about his outlook on the market and the factors he considers while choosing stocks for his portfolio. Edited excerpts:
Within a gap of about a month, there were two instances in which you sold the entire portfolio. What was the rationale behind these moves?
During both the instances, the overall technical chart structure of the market indicated a significant downfall---eight to 10 per cent. During such a downfall, even if one bets on defensives, the portfolio is still subject to erosion in prices. Therefore, at that point of time, cash is king. The current market structure, too, is giving similar signals. One cannot remain bullish on Indian equities if the rupee is giving clear signals of further depreciation. Also, the macroeconomy isn't in great shape. Though the government is doing all that can be done, as of now, there are no signs of improvement in growth. Despite the rise in diesel prices and strong foreign institutional investment inflows through the last four months, the rupee is almost at its all-time low. From an equity investor's standpoint, this is hardly comforting. Foreign institutional investors have also started selling in the debt market. That would mean further demand for dollars. In the longer run, say a period of three to five years, the long-dollar long-Nifty trade would work wonderfully. But from a trading perspective, that's not the case.
What are the factors you consider before buying a stock?
The selection of a particular stock primarily depends on the view on the Nifty. If the view is bullish, buying into high beta counters could be a good strategy. However, if the view is bearish, buying into companies with good corporate governance and compelling valuations would result in good trade. Usually, these are companies backed by multinational firms, or companies that have a clean balance sheet and, obviously, a good technical chart structure. Timing the buying is extremely important.
How convinced are you of AstraZeneca Pharma and Oracle Financial Services, which you currently hold?
My view on Indian equities is not bullish. The rupee is likely to depreciate further and, as a result, pharmaceuticals and information technology-related counters might do well. I feel the action would be extremely stock-specific. Therefore, I decided to buy into these two stocks. Both are backed by multinational companies and for both, recent offers for sale were oversubscribed. Technically, both counters have a good daily and weekly chart structure, indicating the possibility of a rise of 10-15 per cent from current levels.
There are no realty/infrastructure stocks in your portfolio. Is this a conscious decision?
Yes, realty and infrastructure have been avoided consciously. For any of these companies to make money, you need good government policies, with regard to land acquisition and availability/usage of natural resources. Unfortunately, there is no clarity on those fronts. The chart structure of most infrastructure and realty stocks is extremely weak. Therefore, there may be small trading opportunities in these counters, but as of now, a sustained rally looks unlikely.
In the current scenario, would you buy into rate-sensitives?
Looking at the chart structure of the Bank Nifty, we feel the market is sensing there would be no rate cuts in the forthcoming monetary policy. All public sector banks are extremely weak on the charts and good private sector banks are available at lofty valuations. We expect the Bank Nifty to test the 11,000 mark in the next three months. Therefore, I would not be a buyer in bank counters.
Also, the opportunities in stocks of automobile and non-banking financial companies are limited. I feel the cheapest among these, with a decent chart structure, is Tata Motors. I would consider buying that at the appropriate price.
Within a gap of about a month, there were two instances in which you sold the entire portfolio. What was the rationale behind these moves?
During both the instances, the overall technical chart structure of the market indicated a significant downfall---eight to 10 per cent. During such a downfall, even if one bets on defensives, the portfolio is still subject to erosion in prices. Therefore, at that point of time, cash is king. The current market structure, too, is giving similar signals. One cannot remain bullish on Indian equities if the rupee is giving clear signals of further depreciation. Also, the macroeconomy isn't in great shape. Though the government is doing all that can be done, as of now, there are no signs of improvement in growth. Despite the rise in diesel prices and strong foreign institutional investment inflows through the last four months, the rupee is almost at its all-time low. From an equity investor's standpoint, this is hardly comforting. Foreign institutional investors have also started selling in the debt market. That would mean further demand for dollars. In the longer run, say a period of three to five years, the long-dollar long-Nifty trade would work wonderfully. But from a trading perspective, that's not the case.
What are the factors you consider before buying a stock?
The selection of a particular stock primarily depends on the view on the Nifty. If the view is bullish, buying into high beta counters could be a good strategy. However, if the view is bearish, buying into companies with good corporate governance and compelling valuations would result in good trade. Usually, these are companies backed by multinational firms, or companies that have a clean balance sheet and, obviously, a good technical chart structure. Timing the buying is extremely important.
How convinced are you of AstraZeneca Pharma and Oracle Financial Services, which you currently hold?
My view on Indian equities is not bullish. The rupee is likely to depreciate further and, as a result, pharmaceuticals and information technology-related counters might do well. I feel the action would be extremely stock-specific. Therefore, I decided to buy into these two stocks. Both are backed by multinational companies and for both, recent offers for sale were oversubscribed. Technically, both counters have a good daily and weekly chart structure, indicating the possibility of a rise of 10-15 per cent from current levels.
There are no realty/infrastructure stocks in your portfolio. Is this a conscious decision?
Yes, realty and infrastructure have been avoided consciously. For any of these companies to make money, you need good government policies, with regard to land acquisition and availability/usage of natural resources. Unfortunately, there is no clarity on those fronts. The chart structure of most infrastructure and realty stocks is extremely weak. Therefore, there may be small trading opportunities in these counters, but as of now, a sustained rally looks unlikely.
In the current scenario, would you buy into rate-sensitives?
Looking at the chart structure of the Bank Nifty, we feel the market is sensing there would be no rate cuts in the forthcoming monetary policy. All public sector banks are extremely weak on the charts and good private sector banks are available at lofty valuations. We expect the Bank Nifty to test the 11,000 mark in the next three months. Therefore, I would not be a buyer in bank counters.
Also, the opportunities in stocks of automobile and non-banking financial companies are limited. I feel the cheapest among these, with a decent chart structure, is Tata Motors. I would consider buying that at the appropriate price.
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