Within all this a second-level phenomenon, which was playing out, was the predominance of growth over value. The market was willing to pay an ungodly premium whenever and wherever it smelled growth. One can see this strong bias for the growth, when one considers the MSCI India style indices on a year-to-date (YTD) basis until almost mid-September. However, in the last two months this style disparity has begun to reverse.
I would tend to look at this reversal simply as unrealistic growth expectations hitting the wall of actual performance. This may have manifested in various ways for some of these growth favourites – in consumer names as a volume slowdown and as increased regulatory oversight of lending in the BFSI space. But the common thread seems to be of expectations building to unhealthy levels. The road ahead continues to be bumpy but there are bottom-up names, which show healthy promise from a five – seven year perspective.
Midcaps bore the brunt of the recent market correction. Have you altered your investment strategy in the last couple of months?
There has not been much change in the past few months, and as an outcome of the bottom-up investment process in the UTI Midcap Fund, we are currently overweight auto, fertiliser, metals
and chemicals and underweight financials, pharma and cement.
Can you elaborate on your stance for financials?
The NBFCs and retail-focussed banks had stepped into a vacuum created by restrained public sector banks (PSBs). It was a unique opportunity where market share and growth were easy pickings for those with access to funding. Things have begun to unravel after the long growth party, especially for those running a sharp tenure mismatch in their balance sheet. The landscape clearly favours corporate focussed banks with a healthy CASA (current account, savings account) franchise.
What are your views on the September quarter earnings?
Prima facie it seems to have been a better quarter for cyclicals, at least if you look at the Nifty50. Based on long-term historic data, at an aggregate level, earnings growth acceleration is quite dependent on a recovery in the investment cycle. While there are some signs of a recovery in this space, headwinds in terms of inflation expectations and a diffident business environment prior to elections could curb animal spirits. It looks like earnings acceleration could be pushed back much beyond March 2019.
What are the top sectors / themes for 2019 where investors can park their money right now?
Except perhaps for the period between 2003 and 2008, buying a good stock in a bad sector has usually been better than buying a bad stock in a good sector. Capex cycle revival and rural resurgence seem to be themes with significant potential, even if these may currently look a bit sluggish.
How would you do deal with commodity-related sectors?
There may a case for some metal stocks given the cost metrics and how much of supply is available, but it is vulnerable to global trade winds. In cement, the capacity additions, especially brownfield, is keeping the price line in check even as the fuel cost scenario has worsened, so nothing much happening there.
To what extent are the markets factoring in the outcome of the upcoming state elections?
Reversal in Rajasthan, which has traditionally alternated between the two national parties may not surprise the market. More importantly, it looks more like observers are desperate to link state elections to the general elections next year, while historically correlations have not been very clear.
Do you see retail fund flows into equites via the mutual fund (MF) route pick up pace over the next few months?
Anecdotal evidence suggests that investors riding on market momentum are usually a big swing factor. While MFs have been able to bring down the influence of these investors through greater penetration of the steady flowing SIPs, cumulative market performance usually, begin to reflect in ensuing MF flows at least in the short-term period.