Prashant Jain, chief investment officer, Zurich India Prudence Fund
Why are you still overweight on banks?
There are various reasons. Firstly, the Securitisation Bill is a big positive and we believe that the fresh net performing assets (NPAs) will be far lower. Secondly, banks are sitting on huge appreciation on their holdings of government securities (G-Secs). One way to look at the book value of banks is the actual book value plus the accrued appreciation in G-Secs minus the NPAs.
On this basis, banks' book values will look much healthier. Thirdly, we expect the domestic economy to do well this year, which means better credit off-take for banks. Finally, bank stocks are still trading a price-earnings multiple of 2-3 which is very low. They deserve much better valuations.
You also seem to be very bullish on manufacturing companies...
Yes, we are. We believe the domestic economy will grow this year and export prospects are looking good for manufacturing companies. Many of these companies have improved their cost structures. So we expect profit growth for these companies to be good.
HPCL is the largest holding in your portfolio. Does it make sense to hold such a huge exposure considering the uncertainties related to disinvestment?
HPCL is a disinvestment play. We are talking a calculated risk here. If the disinvestment happens, we see an upside of 50-70 per cent in the stock and if it doesn't, the stock could lose about 25-30 per cent. The risk-reward looks good, and since it is a large liquid stock we won't have much problem exiting when we want to.
You seem to be investing only in AA papers in your debt portfolio...
Our debt portfolio basically consists of AA candidates which are potential upgrades. This is the only way we can achieve better returns in the current environment. We have invested only in upgrade canditates.
