In an interview with ET Now, Satish
Ramanathan, Director & Head-Equities, Sundaram Mutual Fund, talks about
the current global
volatility and shares his outlook for different sectors. Excerpts:
How were you approaching this market and do you think in the near term Indian markets have bottomed out?
I don't think so. There are still a lot of global fears moving through and we also have to recognise that the trading volumes in these markets have come down significantly.
There could be pressures due to redemptions coming in for the FIIs and any of these pressures could push the markets down further than we think.
So I do not think we are still clearly out of the woods, but having said that valuations are definitely much more attractive than before, I think that it would be a wait and watch rather than a plunge in deep.
You have a fair degree of exposure to defensives, you own stocks like IGL, HUL, couple of pharma names, so what is your strategy there and at these levels are you reducing your exposure to defensives and increasing your exposure to other sectors?
We have to be cautious in this market which is fairly volatile. It would be a good idea to keep booking profits as we move on, and as and when stocks reach fair value, one should not be scared of giving them up because we are not in the middle of a bull market.
Consequently, booking profits as and when stocks reach their target prices is a good idea, whether be defensive or infrastructure or any other sector for that matter.
What are you making of the kind of volatility that the commodity universe is witnessing, given the kind of choppiness that you have seen across the metals basket in particular? What would be your view on some of these names the likes Sesa Goa, Sterlite and the rest?
Some of them are attractively valued, if you take a medium-term perspective. But there could be still short-term pain in these stocks. So the way we are approaching these stocks is that we keep a small exposure and we trade in and trade out as and when we make a little bit of money.
But we should be very fairly cautious that just as much as inflation is a worry for us, deflation is also emerging to be a bigger worry for the rest of the world. So we need to understand that commodity prices can surprise us on the downside very quickly, as we are seeing in the case of copper which has fallen very sharply over the past two to three months.
How were you approaching this market and do you think in the near term Indian markets have bottomed out?
I don't think so. There are still a lot of global fears moving through and we also have to recognise that the trading volumes in these markets have come down significantly.
There could be pressures due to redemptions coming in for the FIIs and any of these pressures could push the markets down further than we think.
So I do not think we are still clearly out of the woods, but having said that valuations are definitely much more attractive than before, I think that it would be a wait and watch rather than a plunge in deep.
You have a fair degree of exposure to defensives, you own stocks like IGL, HUL, couple of pharma names, so what is your strategy there and at these levels are you reducing your exposure to defensives and increasing your exposure to other sectors?
We have to be cautious in this market which is fairly volatile. It would be a good idea to keep booking profits as we move on, and as and when stocks reach fair value, one should not be scared of giving them up because we are not in the middle of a bull market.
Consequently, booking profits as and when stocks reach their target prices is a good idea, whether be defensive or infrastructure or any other sector for that matter.
What are you making of the kind of volatility that the commodity universe is witnessing, given the kind of choppiness that you have seen across the metals basket in particular? What would be your view on some of these names the likes Sesa Goa, Sterlite and the rest?
Some of them are attractively valued, if you take a medium-term perspective. But there could be still short-term pain in these stocks. So the way we are approaching these stocks is that we keep a small exposure and we trade in and trade out as and when we make a little bit of money.
But we should be very fairly cautious that just as much as inflation is a worry for us, deflation is also emerging to be a bigger worry for the rest of the world. So we need to understand that commodity prices can surprise us on the downside very quickly, as we are seeing in the case of copper which has fallen very sharply over the past two to three months.
You have a very large degree of exposure to Reliance and
Cairn which means you are bullish on energy or local energy companies. At these
levels are you looking at increasing your exposure to Reliance and Cairn?
Reliance and Cairn have reached fairly attractive levels. Having said that if the global oil prices were to fall for some reason, there could be a bit of stress on these stocks, but there are fairly attractive cash flows coming in for both these companies. Consequently we have kept these companies as a defensive exposure rather than an exposure on growth for commodities.
Just want to have your view in terms of the movement that we have seen across the real estate universe, be it a DLF, Unitech, HDIL and couple of these local names as well. Is there a whole lot to read into it or do you think these are just technical bounces?
These are technical bounces because we still have not come to structural problems that many of these companies will go through. The fact that they have to restructure their balance sheets, the fact that they have to sell off their access assets. All of these take time and we haven't come anywhere close to that. Hence I would be wary of these moves.
In the midcap space, what has been your portfolio strategy and where have you allocated disproportionate amount of money? Just for the benefit of our viewers Satish had identified IGL a year ago and that stock has doubled from those levels. So which is your next midcap bet now?
Amongst the midcap space we think that we have to be fairly diversified. It is not about a single sector or a stock. We are in the process of going through and reeling down and understanding companies such as Cummins and other global infrastructure companies who have a decent cash flow and who have the capacity to buy back stock as well as bring in contemporary technology. So we like Bosch, we like Cummins, we like FAG Bearings in that space.
Accenture came out with its numbers yesterday or rather last night and the management commentary clearly indicates that IT spends have not been impacted by the kind of slowdown in the west and they are pretty much stable. So that should augur well for the Indian IT space accompanies with the rupee decline too?
In case of Accenture and Cognizant, they have been coming out with good results. In the case of Indian IT space, it is becoming very company specific, companies that win deals versus companies that do not win deals and there is a little bit of pricing pressure as well.
Reliance and Cairn have reached fairly attractive levels. Having said that if the global oil prices were to fall for some reason, there could be a bit of stress on these stocks, but there are fairly attractive cash flows coming in for both these companies. Consequently we have kept these companies as a defensive exposure rather than an exposure on growth for commodities.
Just want to have your view in terms of the movement that we have seen across the real estate universe, be it a DLF, Unitech, HDIL and couple of these local names as well. Is there a whole lot to read into it or do you think these are just technical bounces?
These are technical bounces because we still have not come to structural problems that many of these companies will go through. The fact that they have to restructure their balance sheets, the fact that they have to sell off their access assets. All of these take time and we haven't come anywhere close to that. Hence I would be wary of these moves.
In the midcap space, what has been your portfolio strategy and where have you allocated disproportionate amount of money? Just for the benefit of our viewers Satish had identified IGL a year ago and that stock has doubled from those levels. So which is your next midcap bet now?
Amongst the midcap space we think that we have to be fairly diversified. It is not about a single sector or a stock. We are in the process of going through and reeling down and understanding companies such as Cummins and other global infrastructure companies who have a decent cash flow and who have the capacity to buy back stock as well as bring in contemporary technology. So we like Bosch, we like Cummins, we like FAG Bearings in that space.
Accenture came out with its numbers yesterday or rather last night and the management commentary clearly indicates that IT spends have not been impacted by the kind of slowdown in the west and they are pretty much stable. So that should augur well for the Indian IT space accompanies with the rupee decline too?
In case of Accenture and Cognizant, they have been coming out with good results. In the case of Indian IT space, it is becoming very company specific, companies that win deals versus companies that do not win deals and there is a little bit of pricing pressure as well.
So Indian companies will need to invest significantly in
marketing and other spend which could contract their margins and we need to
bear in mind that the leading Indian companies have a much higher margin levels
than the international companies.
So the issue in IT is not about growth, it is more about margins and margin pressure that would come through. The growth will cool off probably six months from now which is what the market is worried rather than the shorter-term growth.
Why are stocks like L&T, BHEL they are getting completely smashed out of shape and at these levels are you tempted to revisit large capital good/machinery space?
It is tempting without doubt. These valuations are something which we have not seen in a long time. The primary problem about infrastructure companies is not something about the global issues, but rather local issues.
If there is confidence that local execution rates are going up and order books are going up, then these stocks are definitely worth holding in one's portfolio considering the quality and pedigree of these stocks.
So the issue in IT is not about growth, it is more about margins and margin pressure that would come through. The growth will cool off probably six months from now which is what the market is worried rather than the shorter-term growth.
Why are stocks like L&T, BHEL they are getting completely smashed out of shape and at these levels are you tempted to revisit large capital good/machinery space?
It is tempting without doubt. These valuations are something which we have not seen in a long time. The primary problem about infrastructure companies is not something about the global issues, but rather local issues.
If there is confidence that local execution rates are going up and order books are going up, then these stocks are definitely worth holding in one's portfolio considering the quality and pedigree of these stocks.
Source: http://economictimes.indiatimes.com/opinion/interviews/be-cautious-in-this-fairly-volatile-market-satish-ramanathan-sundaram-mutual-fund/articleshow/10155627.cms?curpg=3
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