Indian market could be volatile in 2019 due to both local & global reasons
Sankaran Naren, ED & CIO, ICICI Prudential AMC
Jan 04, 2019 | Source: CNBC TV18
On market view and whether it’s good time to start chipping in: Mr. Sankaran Naren, the CIO at ICICI Prudential AMC said that, at the start of the year, small and mid-caps were extremely overvalued and, globally, markets were on a roll. Actually, as the year ended, we have a situation where market valuations have corrected. Even in large developed markets such as the US, one has seen a massive correction in the last two months. This has made markets much more reasonably valued in most places. From an investor’s point of view, this kind of an environment is clearly superior to what was seen at the start of the year because, today, for us, barring about a hand full of stocks in the large-cap, mid-cap and small-cap space, most of the market is more reasonably valued. Therefore, there are interesting opportunities for fund managers and investors to look at investing. The ED and CIO said, in his view actually the correction is healthy because if we have an overvalued market and we are a long-only mutual fund, we have more problems at the start of the year than we would have at this point in time.
On gloomy global commentary and global growth concerns: If one is talking about the near-term, clearly the outlook is slightly worrying, given that India has drastically outperformed all the global markets over the last few months. But if one looks at opportunities to invest, it is a different situation. I think from Diwali onwards Indian MFs have been actually supporting SIPs and at ICICI Prudential AMC the recommendation was that 2019 is an SIP year because what is difficult in the near-term, and it is clearly a superb period for SIPs from the point of view of long-term prosperity. If one does SIPs when the market is overvalued, it may not be as good as it is today. So, according to him 2019 is an SIP year, and it supports the entire prosperity initiative. Frankly the team at ICICI Prudential AMC is not worried about near term. 2019 could be volatile due to both local and global reasons but there are huge opportunities in that volatility.
On outlook for NBFCs and picking these stocks: Sometimes one can choose to buy another sector which has actually benefited so if one looks at, for example when PSU banks went through a big non-performing loan (NPL) problem one could have bought both NBFCs and private banks and they actually delivered very good experience. In the recent NBFC issue clearly the opportunity, the profit, the margins of the corporate banks improved significantly. One could buy corporate banks rather than buy NBFCs in Mr. Naren’s view.
Besides, there are times when one actually could buy the sector in trouble like if one looks at 2015 when the China problem became intense and people felt that China is going to blow up at that point of time metal stocks had reached a very interesting level that a pharma stock was higher than the market cap of the entire metal sector. At that point of time we could buy metals but I would say there are times when one is the beneficiary, there are times when one buys the sector which is affected and both would be special situations in the way that the team would look at.
It is not as if one buys everything which is fallen and one of the global experiences of special situation has been that in leveraged stocks one has to be very careful in special situations. The reason is in leveraged stocks if one goes by a special situation, the company can go bankrupt and that is why Mr. Sankaran Naren would say that experience globally from special situation investing has been that one has to be careful in leveraged stocks, but in all other stocks one could get very good investment opportunities. Let’s say when there is a big quality problem on them, there is a big competitive war between all the players in the sector etc.
On picking opportunities in Indian markets and select stocks: If one looks at Indian markets in 2018, just like there was Facebook, Amazon, Netflix, and Google (FANG) set of stocks in the US, in India also one would have a set of stocks which did extremely well in 2018 and that are very costly relative to the market. So it is difficult to predict what happens to the large-cap index because the large-cap index has high weightages in some of these stocks. The CIO of ICICI Prudential AMC said, that from a stock picking perspective different interesting opportunities of stocks with good dividend yields are trading at very reasonable valuations and the advantage is that one can look at only the cheap stocks and the stocks which have become extremely cheap rather than focus on the index; if one looks at Indian large-cap index, it is not yet dirt cheap but there are opportunities within the index which have become very cheap.
On outook and view for IT sector: Mr. Naren said, the AMC’s view on IT has been that it is a sector which is attractive but given the sizes of the companies it’s not easy for them to grow and the AMC thinks that with the correction there is an opportunity. But if one looks at some of the IT services companies listed in NASDAQ, they have fallen much more sharply than what is seen in India. Therefore, one can be positive on them but will have to pick them up as they fall because the way the NASDAQ has seen a correction in the last 2 months is simply astounding. So one will have IT services stocks listed in NASDAQ which are much cheaper than the Indian IT services players. So I would say that one is positive because if you look at it India has certain areas of strength and IT service is certainly one of them. So the long-term view looks good but one has to buy more selectively and more carefully.