A steep correction looks unlikely, given that there has been no reckless build-up of positions this time, says Sunil Singhania , executive vice-president (equities), Reliance Mutual Fund. At the same time, investors should be extremely choosy about the new issues they are investing in since many overpriced offerings have been hitting the market, says Mr Singhania. In an interview with ET , he says pharma, banking and infrastructure are the sectors to watch out for. Excerpts:You are known for your aggressive cash calls, sometimes as high as 35% of the portfolio value in a few schemes. Isn’t that a risky bet in a rising market?
Past 2-3 months have been very challenging in terms of identifying the right stocks. And it looks as like it will remain that way for some time. We have to deploy money knowing fully that near-term valuations are stretched, and that risk on the downside is higher. We have cut down our cash positions significantly, though they differ across schemes. In diversified schemes, we are sitting on cash of between 4-14%. In banking and pharma funds, it is 3-4%, in the power fund it is 16-17%, while in the infrastructure fund, it is 2-3%. But the cash component should not be viewed in isolation. We deploy a fair bit of it in (stock/index)options, which helps us ride the volatile phase of the market, and even beat the market.
Which are the sectors that you are bullish on?
We are very bullish on infrastructure. There is huge latent demand for infrastructure. Also, the government is realising that good infrastructure is becoming an election issue. From a foreign investor’s perspective, this is a sector where one can investment a sizeable sum and get decent double-digit returns. We are also positive on banking. Notwithstanding short-term concerns over rising g-sec yields (and therefore falling bond prices), banking services are underpenetrated, and valuations of bank stocks are cheap compared with allied financial services players. Within the sector, we like PSU banks. We are positive on the pharma sector, and see huge opportunities locally as well as globally. Total pharma sales in India are about Rs 30,000 crore, while sales of Pfizer’s drug Lipitor alone are around Rs 50,000 crore.
What is your outlook on the market from a 3-6 month perspective?
We are cautiously positive on the market. Valuations are not cheap any longer, and big gains look unlikely near term. At the same time, we do not expect any drastic correction either. Investors have been very cautious this time around. Most mutual funds have used the recent rally to book profits. There has been no reckless build-up of positions by traders, as was the case in the previous bull run. Also, traditionally, the October-December period has been good for the Indian stock market.
What should the investor be cautious of? Any factor(s) that could trigger a deeper-than-expected correction?
There are some worrying signs, especially on the capital raising front (qualified institutional placements/ initial public offerings). Lot of poor quality paper is finding its way into the market. Also, many IPOs are being mispriced at the upper end.
The global economy is still not out of the woods. There is a lot of liquidity sloshing around at the moment, which makes everything appear good. But what happens once central banks across the world start pulling out the stimulus money? That is the key question. Some people may argue that a weak recovery in the global economy is good for India, since it will also keep oil prices low. Yet, one must remember that the Indian market had its best phase when oil was climbing from $27 to $150 a barrel.
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