 "Stronger urban growth, to some extent, will offset slower rural growth: Sunil Singhania")
With the CNX Nifty slipping below the psychological support of 8,000, Indian shares are making a U-turn over the past one year. Sunil Singhania, chief investment officr (equities) at Reliance Mutual Fund, tells Chandan Kishore Kant disappointing corporate earnings have taken away most of the gains in the recent past. However, he is optimistic the situation will improve and companies will gain from operating and financial leverage. Edited excerpts:
Are we back to where we started a year ago?
The markets are almost at the same level as last year. So, all the disproportionate gains we have had of the sharp fall in the crude oil prices, the benefits of three interest rate cuts, a growth-oriented Budget, reforms and developments taken up by the government in the past year is available almost for the same prices.
Corporate earnings have been quite disappointing and markets have fallen, taking away most of the gains of the recent past. Low capital expenditure spending from the government, low capacity utilisation of companies and high interest rates had resulted in subdued corporate earnings. We are optimistic that, going forward, the situation would change on the back of increase in government spending, resulting in corporate earnings improving. Companies would gain from operating and financial leverage.
Is there more room for a downside in stock indices from here?
The markets have already fallen by about 3,000 points, or over 10 per cent from the peak levels we had witnessed late in January. Currently, the Sensex is around 26,000. Our view is that we have reached a stage where long-term investors will find it an attractive level to invest. The possibilities of positive news flows far outweigh the negatives at this point of time.
Is the easy money-making phase which we saw in the past one and a half year over? Are you cautious?
The markets have done very well in the past 20 months or so. Many stocks have gone up multiple times. Overall, investors have made good returns. Currently, we are in a consolidation phase, looking for the next leg of triggers. While admitting there is a category of stocks that have gone up much beyond their fundamentals, the current correction has also meant good potential stocks are now available at reasonable valuations for an investor who believes in the India growth story and a long-term horizon.
IMD's projections suggest a deficient monsoon this year. What would it mean for the Indian economy and stocks?
IMD has predicted a below-average monsoon. But, at the same time, another private sector agency has predicted a good monsoon. We have to wait and see how the monsoon really progresses. If indeed we end up having a poor monsoon, it would have a sentimental impact on the markets, for sure. As far as the real economy is concerned, the impact, we hope, will be handled well by the government, like they did last year. The existing adequate food reserves and lower international food prices should help. The government has already indicated help to farmers by way of subsidies.
Will expected stress in rural economy put some sectors off the radar?
Consumption-related themes could get impacted. FMCG (fast-moving consumer goods) companies, two-wheeler companies having a larger share of business coming from rural areas and consumer durables companies could have some near-term impact. However, we believe the urban consumption growth will be much stronger than the past few years and to some extent will offset the slower rural demand.
There has been robust inflows in equity funds despite corrections. What does it mean for investors?
The current correction should be used as an opportunity to buy or add equities. As far as our country is concerned, we believe the building blocks are in place, and it is a matter of time before it starts getting reflected in the overall growth. We advise investors to look at the fundamental growth potential of our country, take confidence from the fact that things are already happening, and invest for the long-term into equities. We are sure we will be a $4-trillion economy. It's a question of when, rather than whether.
Which sectors are you betting on?
We are significantly underweight on FMCG companies across our funds. We are positive on private sector banks, selective discretionary themes like automobile, automobile ancillary, equipment manufacturers and select companies within capital goods. We are also positive on cement and some large power companies. Most of these themes or sectors will benefit from economic growth, and would also get particular benefit from increased capacity-utilisation levels and lower interest rates.
Is there any major risk from global arena which can substantially impact our market?
The impending rise in US interest rates and news related to Greece are what markets keep reacting to, for a while now. Both the IMF (International Monetary Fund) and OECD (Organisation for Economic Co-operation and Development) have recently downgraded US growth expectations. With the dollar already strong, and the US interest rate already having risen sharply in the recent past, we believe the rise in the US interest rate might not happen in the very near term. When it eventually happens, we believe it would be calibrated and well-articulated and that the markets would be able to absorb the rise without too much volatility. On Greece, we hope there would be some resolution soon.
Are we back to where we started a year ago?
The markets are almost at the same level as last year. So, all the disproportionate gains we have had of the sharp fall in the crude oil prices, the benefits of three interest rate cuts, a growth-oriented Budget, reforms and developments taken up by the government in the past year is available almost for the same prices.
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Recent corporate earnings could not justify the rise in stocks. What's your take?
Corporate earnings have been quite disappointing and markets have fallen, taking away most of the gains of the recent past. Low capital expenditure spending from the government, low capacity utilisation of companies and high interest rates had resulted in subdued corporate earnings. We are optimistic that, going forward, the situation would change on the back of increase in government spending, resulting in corporate earnings improving. Companies would gain from operating and financial leverage.
Is there more room for a downside in stock indices from here?
The markets have already fallen by about 3,000 points, or over 10 per cent from the peak levels we had witnessed late in January. Currently, the Sensex is around 26,000. Our view is that we have reached a stage where long-term investors will find it an attractive level to invest. The possibilities of positive news flows far outweigh the negatives at this point of time.
Is the easy money-making phase which we saw in the past one and a half year over? Are you cautious?
The markets have done very well in the past 20 months or so. Many stocks have gone up multiple times. Overall, investors have made good returns. Currently, we are in a consolidation phase, looking for the next leg of triggers. While admitting there is a category of stocks that have gone up much beyond their fundamentals, the current correction has also meant good potential stocks are now available at reasonable valuations for an investor who believes in the India growth story and a long-term horizon.
IMD's projections suggest a deficient monsoon this year. What would it mean for the Indian economy and stocks?
IMD has predicted a below-average monsoon. But, at the same time, another private sector agency has predicted a good monsoon. We have to wait and see how the monsoon really progresses. If indeed we end up having a poor monsoon, it would have a sentimental impact on the markets, for sure. As far as the real economy is concerned, the impact, we hope, will be handled well by the government, like they did last year. The existing adequate food reserves and lower international food prices should help. The government has already indicated help to farmers by way of subsidies.
Will expected stress in rural economy put some sectors off the radar?
Consumption-related themes could get impacted. FMCG (fast-moving consumer goods) companies, two-wheeler companies having a larger share of business coming from rural areas and consumer durables companies could have some near-term impact. However, we believe the urban consumption growth will be much stronger than the past few years and to some extent will offset the slower rural demand.
There has been robust inflows in equity funds despite corrections. What does it mean for investors?
The current correction should be used as an opportunity to buy or add equities. As far as our country is concerned, we believe the building blocks are in place, and it is a matter of time before it starts getting reflected in the overall growth. We advise investors to look at the fundamental growth potential of our country, take confidence from the fact that things are already happening, and invest for the long-term into equities. We are sure we will be a $4-trillion economy. It's a question of when, rather than whether.
Which sectors are you betting on?
We are significantly underweight on FMCG companies across our funds. We are positive on private sector banks, selective discretionary themes like automobile, automobile ancillary, equipment manufacturers and select companies within capital goods. We are also positive on cement and some large power companies. Most of these themes or sectors will benefit from economic growth, and would also get particular benefit from increased capacity-utilisation levels and lower interest rates.
Is there any major risk from global arena which can substantially impact our market?
The impending rise in US interest rates and news related to Greece are what markets keep reacting to, for a while now. Both the IMF (International Monetary Fund) and OECD (Organisation for Economic Co-operation and Development) have recently downgraded US growth expectations. With the dollar already strong, and the US interest rate already having risen sharply in the recent past, we believe the rise in the US interest rate might not happen in the very near term. When it eventually happens, we believe it would be calibrated and well-articulated and that the markets would be able to absorb the rise without too much volatility. On Greece, we hope there would be some resolution soon.