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

Market may touch new highs over the next 12 months: Vijai Mantri

In an Interview with ET Now, Vijai Mantri, MD & CEO, Pramerica Mutual Fund, gives his views on Indian markets. Excerpts:

ET Now: After the recent run up that India has seen, we have become the most expensive in the region, and Sensex is at a valuation of 15 times FY12 earnings, is it time to exercise caution?

Vijai Mantri : I do not think it is a time to log out because if you look at Indian market from valuation perspective, it is still discounted to last 5 to 10 years average PE multiple or price to book value.

If you look at the earnings growth of Indian equity market, the top line continues to grow at close to 20%, even December quarter numbers growth on top line was close to 20%. If you look at the bottom line, we have seen perhaps the worst quarterly result in December 2011 and the results are bottomed out. and there are significant upsides.

The visibility on the corporate bottom line will start emerging over next six month period. So we have not seen yet the full cycle of when the unleveraging will happen, when the interest rate go down, when the one-time adjustment is being taken care of.

So if you look from a valuation perspective, if you look from an earning perspective, we clearly see there is a lot of leg left in this rally and it is not the time to cash out.

Compared to 2009, where the market went up significantly and suddenly investor did not have the opportunity to participate in the equity market, 2012 may allow multiple entry points for the retail investor. So if you are investor and you are investing for three to five year period, whenever you see correction in Indian equity markets you should put money rather than taking money out.

ET Now: Which are some of the key sectors you are bullish on where you have overweight positions and which are the key sectors on your avoid list?

Vijai Mantri : We are buying more in the banking space because we believe the banks will be in a sweetest spot over a 6 to 12 month period for very simple reason that most of the bad news about the banking sector has already been priced in.

The most important news is on the NPA side and if we look at the balance sheet of the bank and if we look at what price they are available, many of these banks are available in the historical low valuation and it means that significant amount of NPAs has already been discounted in and, we do not see NPA going to be that much in the banking space.

The second thing is, the interest rate is going to come down over the next 12 to 18 month period, it would help banking sector significantly.

The third thing, one needs to look at the interest rate curb, if you look at three months bank CD or six month bank CD or 12 month bank CD, they are available around 10% and, if you look at 10-year GSec it is around 820 to 825, so the yield curve is clearly inverted, suggesting interest rate is going to come down.

When the interest rate is going to come down, lot of NPAs would see recovery, so I believe, banking sector would be an interesting space to be in. It is also a direct play of India GDP.

The second space we are turning bullish is the capital goods because we believe this sector will see some activities because the government will come out of the reform post budget and post UP election and, the market would see the visibility of these things at least 6 to 12 month now but the visibility as far as the profits and the activities of the investment side will take 6 to 12 months.

But the market will start discounting these things much ahead of a visibility on these areas. So I believe capital goods, banking would be the interesting space and added to that is industrial space. We are overweight on these three sectors. We are underweight on real estate, we are underweight on IT.

ET Now: So what do you like from the cap good space?

Vijai Mantri : If you look at the capital goods, we like BHEL, L&T, Crompton & Greaves, Thermax.

If you look at the cycle of these companies over the last 10 to 15 year period, you get out what should have been your entry point and when you could make money in these stocks. These companies have gone through the challenges where the order book position was not looking very good.

The policy paralysis we have seen in past, interest rate going up, the competition from international market, so these companies have seen all these things over the last 15 to 20 year period and the best time to own these stocks has always been around the same time, so we are looking at these companies.

ET Now: Indian markets are up 20% this year and that is largely on account of liquidity but the fundamental turf is not looking exceptionally strong, factors which got us down in November and December were high crude prices, high inflation and a ballooning subsidy burden, can we brush aside all the macro concerns?

Vijai Mantri : I do not think we can brush aside. These problems would continue to remain there. I think inflation would come down. If you look at the fiscal deficit the government has said there is 4.6% fiscal deficit.

Market has already anticipated even in last year that these numbers do not add up, so market was already discounting all these factors. If you look at this year, market is anticipating that as far as fiscal deficit is concerned, it may hit 5% plus kind of number so market has priced in all these things.

If positive news flow happens then you will see the market going to the new level and the positive news flow may not necessarily has to come from the international market. If you look at the rupee-dollar play, part of the inflation is because rupee has depreciated against the US dollar and, now rupee is in appreciation course and if that stays there, again inflation would come down.

So we know that the inflation would remain there, it may come down to 6% but still above RBIs comfort level to 4% to 5%, but 6% is pretty okay. It may have a chance to coming down further. About fiscal deficit, we know the ground reality will remain around 5% but in spite of those things, we believe that the India is in a good shape and it will continue to be in good shape post budget and UP elections.

ET Now: On a scale of 1 to 10 what to your mind are the chances that Indian markets will touch or will cross the previous high of 21000?

Vijai Mantri : My sense is that over the next 12-month, the market may touch new high and I will put 70% chance on that.

Source: http://articles.economictimes.indiatimes.com/2012-02-17/news/31071532_1_banking-sector-banking-space-interest-rate/2

Pramerica Mutual Fund to buy 39% stake in Prudent Corp for Rs 20 crore

Pramerica Mutual Fund is close to buying a 39% stake in Ahmedabad-based retail distribution outfit Prudent Corporate Advisory Services for about Rs 20 crore, according to two persons close to the deal.

The stake acquisition will help Pramerica, which manages over Rs 2,100 crore worth of assets, widen its distribution base significantly as Prudent ranks among the top five retail fund distribution companies.

Officials at both Pramerica Mutual Fund and Prudent declined to comment on the development.

Prudent, which was formed in 2000, offers personal and corporate investment planning services through mutual funds, third party products, portfolio management services, fixed income and real estate.

It is also a corporate agent for Kotak Life Insurance. Prudent services assets worth Rs 3,500 crore, of which about 60% is invested in equity funds. It manages about 1,25,000 retail systematic investment plan folios.

Prudent, which has partnered over 4,000 independent financial advisors, has 48 branches spread across western and northern India. Prudent earned commissions worth 21 crore last year, according to AMFI.

Pramerica intends to start it PMS segment soon; this deal may help the company get rich clients from Prudent's strongholds in Gujarat, Uttar Pradesh, Delhi and Punjab," said the marketing head of a mid-sized fund house.

However, many distributors said Prudent may not be the right pick for Pramerica.

"Prudent was a strong retail distributor till about two years ago... it lost the game when it forayed into real estate. Foreign fund houses will not be really happy to partner with anybody who does real estate broking," said a Mumbai-based distributor.

Source: http://economictimes.indiatimes.com//articleshow/11969583.cms

Why are 8 firms bidding for loss-making Fidelity’s India assets?

Fidelity, one of the worlds largest fund managers in the world, has decided to exit India by selling of its assets.

What’s surprising is how many firms are scrambling to grab what’s up for sale.

According to an article in Mint, eight firms including Tata Asset Management, Pramerica Asset Managers, US financial firm State Street Corp, Mizuho Financial UFJ Financial Group Inc, and a joint venture of Ambit and Nikko are some of the companies interested in buying the assets of Fidelity’s Indian asset management arm, FIL Fund Management Pvt Ltd.

For a company that reported an accumulated loss of Rs 333 crore —the highest in the domestic mutual fund industry — that’s quite a long list of suitors. In 2011 alone, the company’s losses had more than doubled to Rs 62.39 crore from the previous year.

According to an article in MoneyLife, a fund needs at least Rs 10,000 crore in assets under management to just break even. Fidelity had never reached that figure, which is what exacerbated its losses. Fidelity had equity-related assets totalling Rs 6,183 crore and about Rs 2,696 crore in debt schemes at the end of December.

However, Moneylife blamed two Securities Exchange Board of India (SEBI) chairmen in particular for the fund’s failure. “The foolish regulations that killed all incentives to sell mutual funds started under former SEBI chairman CB Bhave’s tenure and has been taken to new depths…the current SEBI chairman UK Sinha,” it said.

SEBI’s decision to ban the entry load also had a dramatic impact on the profitability of the mutual fund industry as it hit distributor margins.

Given these various problems, why are so many firms interested in Fidelity’s assets then? It is because of the fund’s large equity exposure or more because some new foreign fund wants to enter India via this sale?  Lets hope they do their home work well or we may end up seeing another stake sale soon.

Source: http://www.firstpost.com/business/why-are-8-firms-bidding-for-loss-making-fidelitys-india-assets-215199.html