Broader markets to give double digit returns over 6-8 months
S Krishna Kumar, Sundaram Mutual
May 10, 2019 | Source: ET Now
On current market scenario: Mr. S Krishna Kumar, CIO, Sundaram Mutual said that , over the last six months, in terms of global macros which have been panning out from the short-term events and long-term structural changes which is permanent in nature indicates that developed countries are in a softening growth mode which will keep inflation, interest rates and liquidity very favorable . This is a very constructive framework for investing in emerging markets as events like Brexit delays, uncertainty over US-China trade war, Iran sanctions etc will keep the markets in short-term volatility mode which will provide a good opportunity to get into emerging markets from a medium term perspective for the investors. He further added that Sundaram Mutual continues to remain constructive on the India story and the EM story over the next two years .On the auto and the consumer space he said slowdown has been triggered by tightened liquidity conditions and higher rates in the domestic system which is a matter of the past ,as going forward Mr. Kumar expects the inventory levels to get cleaned up in the system for the automobiles and consumer goods. In the next three months, some kind of a positive direction on these metrics for these companies is expected. The festival season which will come into August-September could be an inflection point for the consumer discretionary space at the current point. He expects short-term uncertainties to continue and election result time to again throw up a lot more volatility.
On pledging of shares: Wherever business decisions have gone wrong, promoters will have to lose stake and get strategic or other right private equity partners to help them improve the balance sheet or the business. When there is a good business and where potential suitors could come in and buy stakes, one needs to be a little patient , take it up the case by case and which could be a good opportunity to invest in terms of special situation. It is a very good space to look at opportunities which can be a significant turnaround over the next 12 months.
On markets over the next nine months: Mr. Kumar said the calendar YTD returns indicate that there is still a lot of softness across the broader markets , a lot of the midcaps and small caps have terribly underperformed the large caps in the three-year returns . The rally in February-March was driven early by a lot of passive money which came into the EMs, particularly India. Hence if we look at broader markets beyond 10-15 stocks in Nifty which have pulled up the Nifty, there are many opportunities available to invest in them. Mr. Kumar added that over six month-one year period, the election uncertainty will be over in the next 15-20 days, the core sector numbers have been very good in March and there are certain indicators that the broader economy at the core level is doing a little better than what one expected. Consumer sentiment is weak but it is more of a sentiment issue and a liquidity issue from NBFC side. Mr. Kumar believes those things will sort itself out in the next couple of months as banks will expand more into the consumer retail space as they have been doing easing liquidity. Hence Sundaram Mutual remain optimistic about broader market rally over the next six to eight months and in this fiscal year and expects it to give double digit returns over the next six to eight months .
On buying strategy and promising sectors: Mr. Kumar’s current strategy is to be more diversified. He says that consumer space had been lucrative in the past and will start performing again given a lot of spending on the cyclical side on discretionary products ,which is why Sundaram will have it in the portfolio by buying in the present correction to add quality names. He further said along with consumer stocks it is more important that investors look at the broader segments of the market for cyclicals in terms of cement, infra, capital goods and industrials. He believes there are a lot of underweights in those spaces across the big investors and also the retail, and those sectors have been ignored in the past two to three years. Sundaram has observed a lot of money chasing value in those segments since uptick from a growth perspective is expected there. One of which is Cement which has been registering double digit growth because of the infra projects which will continue to drive growth in addition to affordable housing and pickup in the real estate space .Also a very strong pricing power is expected in the Cement sector which makes it a lucrative bet. Hence he advices to create a more diversified portfolio which will represent good growth opportunities at a reasonable price.