Tuesday, February 21, 2012

Market in a correction mode: Sunil Singhania, Head Equities, Reliance Mutual Fund

In an Interview with ET Now, Sunil Singhania, Head Equities, Reliance Mutual Fund, gives his views on Indian markets and a range of his favorite sectors. Excerpts:

ET Now: For this year, India has really outperformed the region. Have you been surprised by the pace of the rally and what is the approach that you are now adopting?
Sunil Singhania : This rally has got everyone unguarded so to say. The speed and the intensity has been very sharp. There might be some events here and there which might ensure that there are some small reactions to the market.

However, one interesting thing is that after a long time we are seeing investors both global and domestic looking at these reactions to invest aggressively which was unlike the past 18 months where investors were looking at up ticks to sell. Now it has changed to--buy on reactions. So even if there is a reaction, our call would be that these reactions are going to be short and swift.

ET Now: My compliment, on the same forum, exactly a month ago, you had indicated to our viewers that it is time to buy equities aggressively. So my question today is now that liquidity is back, do you think for Indian markets, the bear market is over and the new bull market has started.
Sunil Singhania : I wish it were so simple and the good thing is that at least the optimism is back. Equity investment is again starting to be looked at.

We have seen markets move from we can say over optimism to huge pessimism. We are now in a correction mode. At this point of time, we would not say that the markets are expensive. They are fairly valued but there are a lot of companies on the midcap side, some of the beaten-down sectors where people had given them valuations of probably a liquidation and those have already come back.

As you said, some of the stocks have moved 70-80% over the last one month but again we will just highlight that they have to be looked from their fair valuations and from the highs rather than from the lows.

So our attempt is to try and see how we can rejig and move from just exuberance kind of stocks without fundamentals, moving up to companies which have fundamentals and which are yet to participate in the rally.

ET Now: What have you made of the policy action in the power space now?
Sunil Singhania : There is no doubt that power sector in India has got huge potential. You have severe power shortage, the demand is insatiable. So from a developer's perspective, it is a very good business to be in where you can put in huge sums of money and then you have huge demand.

What has happened over the last couple of days has been that the roadblocks which were becoming very big for the power sector in terms of fuel availability has been addressed completely as far as coal is concerned. So it is a very positive move.

The fuel security which the power companies will get will ensure that the projects which are already either completed or in the process of being completed over the next few years would be ensured with a reasonable coal supply and there is incentive and disincentive both in terms of working as far as the PLF is concerned. So it is a very good move but more importantly, this is a move which has been directed from the PMO office. So there is a lot of seriousness to it.

Also, we hear that the EGoM is going to meet again, one to take up the issue of the problems faced by UMPP very soon and followed by an EGoM on the gas as far as the power sector is concerned.

So from our perspective, this is not a one-off event, it is a chain of events which will ensure that the much needed boost to the power sector is coming through. We should not forget that power sector is one sector without which the dreams of India to consistently grow at upwards of 8% will never be met.

ET Now: Fair point, the FSA or the fuel-supply agreement indeed is a game changer for some of these power companies but from your perspective, are power stocks looking slightly expensive because most of the power stocks this calendar year, have already appreciated by about 50-80%. Is all the good news baked in at current levels?
Sunil Singhania : We are probably making a mistake of seeing the lowest price and trying to see how much they have moved up from the bottom. However what we have to also look at is, what are the valuations compared to the reasonable fundamentals which these companies have. There are definitely pockets where if things start to move or start being pushed the way the signs are now, there is definitely potential of significant more upsides.

We have seen the kind of opportunity and the kind of interest with the sector attracted in 2006 to 2008, obviously the last 18 months because of multiple reasons, whether it was fuel availability or whether it was land availability or the interest rates going up, we saw the reverse.

There is definitely optimism from our perspective and we do feel that this is one sector where a sustainable 14-15% growth for a long period of time is definitely possible.

ET Now: What is your sense, do you think the power sector will now be the next leader in the bull market?
Sunil Singhania : I do not know whether they will be the leaders of the bull market but it is a very good sector. The good thing is that everything which was working against the sector has started slowly working in favour of the sector.

So on one hand, you have interest rates which have started to come off which is again very positive because it is a high capital intensive sector. The other thing is that equity investments have started to come back. So this risk appetite will ensure that the equity capital which some of these larger power companies need will also be available.

Added to that, the PMO's and the government's attempt to ensure that all the roadblocks for the sector are slowly addressed, again is a very positive. So we remain quite optimistic.

ET Now: In quick time, Nifty has moved from 4500 to 5500, now almost 5600. Do you see 5000 now acting as a serious base for the Nifty? 5000 is where you think there is a lot of support.
Sunil Singhania : I do not know about the numbers but as I said earlier, unanimously everyone is looking at corrections to invest. So as I said corrections are going to be short and swift.

ET Now: In 2011, mutual funds saw net outflows. Is SIP in retail money coming back in these markets?
Sunil Singhania : Media companies should be encouraging investors to put money. Unfortunately during the last 1.5-2 months, the mood had been so gloomy that new money had definitely not poured in but we are already seeing interest from investors.

They are waiting for a small correction and on a small correction, we will definitely see more money coming in.

One thing I would like to mention here is that there is definitely good amount of money in the system. NHAI bonds and the all those other tax-free bonds can get hugely oversubscribed and collect Rs30000-40000-50000 crores all put together.

It clearly indicates that retail has lot of investments, lot of money waiting to be invested and once the confidence starts to trickle down, there is a lot of hope of big money coming in.

ET Now: Apart from power, what is it that you are overweight on and where do you see value?
Sunil Singhania : There are again lot of individual stocks where there is definitely some hope. There were concerns about some metal companies. If you see, metal companies have also moved up 30-40% but from their highs, they are significantly lower.

Probably from a longer-term perspective, there is a lot of value in metal companies. In near term, there are always going to be concerns about what happens to China, Europe, some mines which are in India, but from our perspective, there are companies across sectors where a lot of pessimism had been built in. To some extent, it has been corrected but there is still value in some of these sectors.

The other thing is that we also have to look at where the regulatory changes can impact positively. So we are overweight in some of the media companies on the cable side. We feel that there is some optimism in the insurance and the retail side.

ET Now: That seems to be big portfolio change, seems to be a big change in stance, isn't it because last time when I interacted with you, you were of the view that one should buy pharma and PSU stocks?
Sunil Singhania : No one expected the intensity of this rally. The rally has definitely taken everyone by surprise but it is a positive surprise. From our perspective, if small steps continue to be taken by the government and if, the macroeconomic factors which are now looking in favour of India as an economy (whether it is inflation or interest rates) continue, the market and the economy has a lot of optimism from a longer term perspective.

Source: http://articles.economictimes.indiatimes.com/2012-02-17/news/31071489_1_power-sector-sunil-singhania-indian-markets/2

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