We are overweight on automobile and media stocks, we are underweight on pharma
Sonam Udasi, Fund Manager, Tata Mutual Fund
May 16, 2018 | Source: Capital Market - Live News
In an interview with Anjali Raulgaonkar from Capital Market Publishers, Sonam Udasi, fund manager, Tata Mutual Fund said, If the rupee is going up slowly or crude inches up slowly, it is less of a worry. But if there is a shock, there is a problem. At the moment, this is fine. It is a palatable risk.
Should equity investors worry about rupee depreciation and rising crude prices, or just ignore them?
There is a concern. Rupee stability is always good from a foreign investment standpoint. Oil brings inflation into the economy. So, from those perspectives, there is an overhang on the equity market.
That said, there have been times when some bit of inflation has been good for the economy. For instance, the consumer sector tends to do better because nobody questions the pricing power. Even in corporate and retail lending, prices sort of go up. That is good for the spread. We must see whether crude oil sustains or remains high for a very long time. If there is too much gyration in crude oil price, then it is a problem. If the rupee is going up slowly or crude inches up slowly, it is less of a worry. But if there is a shock, there is a problem. At the moment, this is fine. It is a palatable risk.
About 2-3 months back just after December quarter earnings were out, valuations had looked better. With the March quarter numbers still coming out, does your opinion of valuation change?
Even this time around, barring the corporate bank results, the trend in the consumer and auto side has been very good. Yes, some corporate banks have reported losses. But we must look at the positives as well. Large companies showing double-digit EBITDA are good numbers to look at. I expect the numbers of the energy basket to be not too bad. To my mind, all this will add to making valuations cheaper. As a fund manager, if you ask me, I am seeing more opportunities for creating wealth. These opportunities will take 2-3 years time.
You manage the nearly Rs 1,000-crore Tata India Consumer Fund. What is your take on consumption stocks?
India is a consumer-driven economy. As per capita moves up, then logically your ability to consume different things appears and you also tend to focus on wealth creation. Once your basic needs are met, you either want to buy the next home or set up a business or create financial wealth for yourself.
As the fund manager of the Tata India Pharma & Healthcare Fund, and the Tata Digital India Fund, where are you seeing value?
Comparatively, the IT sector looks a little better. There are few reasons why I am saying so. One, a few of the IT firms own 8-10% of their market value in cash. This allows them to give you buybacks and or dividends. These provide a cushion to valuation. Some of the IT midcap names have the potential to change their earnings trajectory. In the same vein, I am quite hopeful of the performance of the midcappharma and healthcare sectors. In pharma, there are many compliance issues and then there is Modicare, there is Trumpcare etc.
Resources stocks have in the recent past done very well. How are you positioning your Tata Resources & Energy Fund?
I think as we get to housing for all, cement is one space that should do well. Maybe look at agro-chemicals space and specialty chemicals sector because of the China factor. That said, this is a more tactical fund.
Your largest fund is the Tata Equity PE Fund. Which sectors are you buying and which are the ones that you are less bullish about?
IT, energy, some holding companies and some BFSI names and chemical stocks are looking good. But for me, PE (price/earnings) valuation is just a starting point. I am looking at compounding machines.
In that context, we are overweight on automobile stocks, on media, we are underweight on pharma etc.