Dhiraj Sachdev, SVP & Fund manager at HSBC Global Asset Management
Aug 19, 2016 | Source: CNBC-TV18
Go with the flow on the upside or start to get a bit concerned about valuations at these levels: To give a market perspective, we are still in the early stage of very powerful and structural bull market. The reasons are plenty from favourable monsoons, which is expected to drive consumption demand to government's thrust on reforms and capex especially on the infrastructure side be it roads, railways or highways to positive real interest rates as well as the fact that corporate earnings are expected to recover. We are already seeing a reflection of margin expansion happening on the corporate side. Besides the macro indicators are also fairly favourable be it stable rupee or stable inflation, lower current account deficit, rising tax revenues etc. So, while there is a structural shift happening in the domestic savers in favour of equities and also 40 percent of developed markets, sovereign bond being negative yielding, which is chasing emerging markets I don’t think or it is unfair to call this market as just purely liquidity driven. Liquidity chases good fundamentals in pursuit of higher returns and that is what is happening. Let us take for example in real estate we saw in last 10-12 years of very super cycle when the real estate prices rallied and nobody complained there that it is liquidity driven rally. In fact, real estate asset class was more mortgage driven where the liquidity was infused because mortgage finance was available to the home buyers. However, nobody complained that real estate rally is liquidity driven just because real estate property prices are not listed on the exchange. So, we should not shrug this equity market rally off by just saying that this is a liquidity driven rally. Of course, corrections will be part and parcel of the market, but if I have to define the character of corrections in this bull market, it is going to be sharp swift and short-lived and should be bought into. To add to the point is that valuations are still favourable; we are still in the early stages of an up cycle in the earnings side. The peak of the earning cycle is still far away, so I don’t thing valuations are scary at this point of time.
Overweight stance on both industrials and consumer staples: It is very stock specific, so wherever in consumer staples we felt that the valuations are relatively attractive to the sector per se or to other companies that is the position that we have taken into account. However, by and large we have positioned ourselves across many other segments be it agro chemicals, specialty chemicals, non banking finance companies (NBFCs) for example be it on the home mortgage financing business or gold mortgage finance business, stock broking business or print media, cement and home textiles. So, we are fairly diversified as far as fund positioning is concerned.