Sectors where a long-term wealth creator can deploy money

The general consensus is the elections might impact the market for a quarter or so, and the results of the elections will be digested quite fast, R Venkataraman, MD & Co-Promoter, IIFL Group, tells ET Now.Edited excerpts:What you are hoping to hear from the IIFL conference because this year has been filled with nothing but volatility. We are only two months down and the selling pressure is already fairly acute. The theme is elections, economy and earnings. What exactly do you want to hear. The mood in the conference, especially from the foreign investors side is “cautiously optimistic”. We have seen a huge bout of volatility from October onwards and we seem to have a very polarised market. Nifty is just hovering around the 10,700-mark, but the smallcap and midcap indices have been very badly hit and they are down almost 40-50%. Last year, when we had the conference all of them were thinking that valuations are a bit steep and earnings growth is not getting reflecting and now most people are thinking maybe there is value in spite of the steep correction happening in the boarder market. They are all waiting on the sidelines. As you rightly pointed out, we are entering the election season. General elections are likely to be in May. People are trying to take a calculated bet on which way the economy will move. Yesterday, one of the speakers in our conference very nicely put about India that even coalition governments seem to do better than majority governments and whichever party is there in power, India somehow manages to grow or chug along. The theme is that maybe elections do not matter so much and broadly speaking the Indian economy will continue to do well. In that light, what is the pulse of the market right now? Are investors just sitting on the sidelines or are they already beginning to deploy money on dips? The broad sense we got is that people are reworking their numbers and they are optimistic and they are seeing values beginning to emerge in the broad market. As I said, there is a pocket of stocks which are holding the Nifty up and those are valued richly and the rest of the market is like as if there is no tomorrow. People have started to doing the math and they are still confused about the outcome of the elections, the general consensus is the elections might impact the market for a quarter or so, and the results of the elections will be digested quite fast.As of now, all the pollsters or psephologists and political experts are of the opinion that at this point in time, although it is too early to call elections in India and everything changes dramatically overnight, as of now it looks as if the NDA will come back with a lesser number of seats. But it is too early to predict the elections and frankly speaking, the seasoned investors who have been investing in India for more than 10-15 years, are interested in outcome of the elections but that will not swing the needle in a big way. The key theme is what will happen to interest rates? The RBI governor had given a 25 bps cut and so are we seeing the end of the rate hike cycle? Will we see a moderation going ahead on the interest rates, will demand come back? Those are the bigger issues people are grappling with. So what is the chatter then when it comes to the macro situation? Both the interim budget as well as the monetary policy earlier this month, seem to be about infusing and instilling growth. Do you think the interest rate trajectory will ease further from here?If you look at all the data points which are coming out especially on the inflation front, even the projected numbers look quite comfortable. We are below the lower band of the inflation estimates and in the latest MPC also, they turned into an inflation dove from inflation hawk. People are now no longer getting concerned about inflation. Our opinion is that given the way inflation is trending, in all probability, we will have a rate cut going ahead. In the remainder of CY2019, we should see another 25 bps or maybe 50 bps cut in the rate.Where do you find value in a market such as this? Where can a long term wealth creator look to deploy money?Actually the strategy for the rest of the year is clearly bifurcated into two periods; the feedback we are getting, the chatter we are hearing on the sidelines of the conference, in the period from now to the election, I would say people are taking a defensive position because most of them are going after the usual favourites which is the FMCG, IT and pharma. But if you take a 12-18 month view, then people are looking very carefully at the corporate banks because there is a feeling that we are seeing the improvement in the NPA cycle and there will be recoveries and credit growth is also coming back to the economy. The other sector which people are looking at is the entire pack to do with industrials, which is cement and construction. I would say the entire sector is facing a headwind but the entire private sector capex is expected to pick up so the capex cycle, cement those are the things people are looking at a 12-18 month framework.What is the sense you are getting from the capital goods sector?The sense we are getting is that this sector has not gone anywhere for the last so many years primarily on the back of the slowdown in the economy and the private sector capex not picking up. Last two, three years, we have seen the government sector spending and recently all indicators are pointing that slowly and steadily, as capacity utilisation across the economy picks up, then there will be some amount of interest in spending and building up capacities. Having said that, we will get a clear view on what is happening in the capex front as well as the pickup in the capital goods sector. once the elections are over. My guess is that although I am contradicting myself that elections will be a one quarter phenomenon, but still I think the companies are just waiting and watching before actually pressing the trigger.

from Economic Times http://bit.ly/2Swi4pA

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