Manager Speak : Prashant Jain, fund manager, Zurich India Prudence
You were the first to enter into oil stocks. Barring the disinvestment upside, do you think there is still an investment story there?
If there's no divestment happening, you could lose some money in the short term. However, in the medium term, you can still make money on the stocks even if the disinvestment doesn't come through.
Deregulation has helped the companies improve on profitability and they should post good results in the second quarter. The dividend yield on these stocks is around 6-7 per cent, so I don't see the stocks trading at current P/E levels of 4-6 times for a long time. The risk-reward ratio is in favour of oil stocks and that's why we are holding on to them.
What is your outlook on interest rates? Are you expecting a rate cut in the credit policy?
I think the short-term interest rates have to come down further. As far as long-term rates are concerned, right now there is no upward pressure on them. But I think the short-term rates will fall more than the long-term rates.
Bharat Forge is the top holding in your portfolio. Why are you bullish on the stock?
I think the outsourcing story will spread to the auto ancillary industry. In a bid to cut costs, international auto manufacturers such as Ford and General Motors will increasingly outsource their requirements if Indian auto ancillary manufacturers can meet international quality standards as the costs are competitive.
Bharat Forge, because of the huge exports flow, already complies with international quality standards. They are currently operating at 50 per cent capacity and there is a lot of scope for growth. We expect the company to record good profit growth and emerge as a globally competitive company in the next few years.
Do you think India Inc will show good earnings growth in the second quarter? What are your expectations?
I think, barring the cement sector, all other sectors such as IT, oil will record higher profits. I don't think there will a slowdown in profit growth for corporates.
