We are overweight on corporate banks, IT & pharma: V Srivatsa, UTI MF
Good opportunities have come up in the NBFC space in last one year.
How did you analyse the strength in the SIP data? Where are you deploying all the flows which are coming in?
The SIP data in general, in the last 12-24 months has been quite resilient. It is really the hard work done by AMFI as well as a lot of mutual funds in investing the overall public that investment in mutual fund should largely be through SIPs. That is a very good way to build up one’s corpus and investors finally are not unnerved by any kind of market fall. So, they are continuing with their SIPs. This is a very good trend and which has helped the market in the last 12 to 24 months.
In terms of a portfolio positioning. we are overweight in corporate banks. We believe very strongly that the earning upgrades are there and because of the fact that your credit cost will get normalised and there could be some recoveries as well, it makes us quite positive on corporate banks. The last 12 months has thrown up very good opportunities in the NBFC space and because of the overall liquidity pressure, most of the NBFCs have de-rated and the market has probably failed to distinguish between the good ones and the bad ones.
The good ones which are able to attract money on the debt side and are quite resilient and we are quite positive on the good quality NBFCs in general. Apart from that, we are also overweight on IT and pharma. Both these sectors, especially pharma. should see some kind of an earnings upgrades as well which has not factored in by the market.
Which side of the fence are you — lagging indicator or worrisome commentary?
We strongly believe that the worst is over as far as growth is concerned. In the last three months, the government has made a lot of efforts to revive the growth and my view is that we are a growth economy. There have been some roadblocks.
The biggest impediment in the last one year has been the liquidity. As I said, most NBFCs are starved of liquidity. There is a general kind of a liquidity problem in the economy with that kind of liquidity issue. It is probably very unfair to expect a very strong growth.
Now the government is taking measures to bring back the liquidity into the overall economy and we are an inherent growth economy. Most analysts highlight a very good demographic dividend and rising per capita income. It is just a question of time before the growth recovers and it is very difficult to predict when it will happen. But if it happens, it will happen over one or two quarters which will probably catch most analysts by surprise.
I will not be too surprised if six months down the line, we could be looking at a higher print of growth as far as GDP growth rate is concerned. Yes today based on the events and a lot of high frequency data points, most analysts would believe that we are in for a prolonged growth, but I don’t think that. I am of the view that ours is a structurally high growth economy and it is only a question of time before we achieve our potential.
As a fund manager how do you analyse such moves of demerging say a lifestyle business into a separate company as Raymonds has done?
Historically, there have been many instances like the ones you have mentioned where the company has kind of demerged. A very good piece of business can command a very good multiple but has not been able to get that multiple because it is saddled with other businesses which are probably loss-making. If you analyse the data in the last seven-eight years, by and large, it has been quite positive even if you look at the sum of parts because the one which has been demerged and where the good part of the business is, has seen re-rating which more than offset the devaluation one would see in the other part of the business.
It is really a good move by the companies if they were to do it and by and large, data suggests that over a longer term, investors tend to benefit from it.
How do you see the instances of very high quality companies coming under the corporate governance crossfire? Do they wither the storm or can there be some value destruction when such things happen?
Whistleblower allegations are very difficult to predict. They cannot be built into the model. It is a kind of a black swan event but generally, high quality companies which have demonstrated a high level of corporate governance and are earning very good ROCs and cash flows, have not seen any big corporate governance issues as such.
Now if something comes off all of a sudden, as I said. it is a black swan event which as fund manager or market analyst it is very difficult to predict. We really need to keep a check on what has been their corporate governance practices on a yearly basis and whether they are still continuing or whether there is any lag. By and large, if you look at the high quality companies across the spectrum, they have maintained an excellent track record of corporate governance which probably does not give a cause a concern to the investors as far as governance issues are concerned.