#39;Can have stocks from home building, cement, gas and financials in portfolio#39;

Can have stocks from home building, cement, gas and financials in portfolio

Harish Krishnan1280

Given the US presidential elections, Harish Krishnan of Kotak expects the volatility could spike up in the short term, but feels in the long term, it is depend upon companies’ adaptability to changing business dynamics post elections.

Generally, as an EVP & Fund Manager (Equity) at Kotak Mahindra Asset Management Company, he prefers to maintain discipline of investing in good quality companies rather than predicting short-term market movements.

He is positive on some sectors, such as home building, cement, gas sector, companies that are beneficiaries of financialisation of savings, auto & auto ancillaries, etc.

In an interaction with Moneycontrol’s Sunil Shankar Matkar, he talks about the stock market, September quarter earnings and the impact of US elections on India.

Edited excerpts:

Q: The US will conclude its 59th quadrennial on November 3, 2020, one of the most unconventional US presidential races ever owing to the ongoing pandemic affecting public life and a record number of people opting for postal votes. Do you think the US elections will have an impact on Indian equities and what is your strategy?

Given the large move from the lows, it is possible that near-term volatility spikes up, either due to elections or otherwise. Events like elections dominate news headlines and influence market participant behaviour in the short term, but in medium to longer term, ultimately it boils down to adaptability of Indian businesses to adapt to any changing business dynamics be it change in regulatory environment or competitiveness. For now, we continue to remain invested in businesses which have demonstrated track record of adapting to change in the past.

Q: What are your thoughts on IT earnings announced so far (TCS, Infosys, Wipro, HCL Technologies, Mindtree, Cyient) and have you made changes to your IT basket after earnings? What is your advise (should one buy them all) and outlook on the sector?

Indian IT services companies have demonstrated strong resiliency during the pandemic, further improving their relevance to enterprise customers. Net IT software exports for India declined by 1 percent YoY in Q1 FY21, the period of maximum lockdown in India. Given strong rally in prices in the last few months, we have booked some profits. However, we continue to remain positive on IT sector, as we believe pandemic has influenced enterprises globally to further sharpen their investments in technology and digital so as to remain relevant to their customers. Our preference is to identify companies that have greater exposure to digital technologies.

Q: The market has gradually been inching higher amid volatility and consolidation. Do you think the Nifty will hit record high by December-end?

We have no edge in predicting near-term moves of markets. We believe asset allocation, discipline of investing in good quality companies which can change their business models in conjunction with post-COVID environment and patience to wait for demand to normalise & businesses to execute their plans augur well for investor to make return in equities as an asset class.

Q: Going ahead what could be triggers for the market to watch out for, and also what could be major risks (global and domestic)?

Demand normalisation (high frequency indicators, credit growth, NPA and health of banking system etc) as well as market share gains by listed players as they benefit from supply constraints of large unorganised segment are data-points we track to gauge the recovery and potential profit pool trajectory of listed companies in the next few years. Risks to recovery are higher infections and delay in medical solution to COVID as well as change in habits (like both corporate, households focusing on savings delaying investment cycle significantly etc).

Q: The RBI recently increased the Loan to value ratio to 90 percent for home loans below Rs 30 lakh and Knight Frank India said Indian real estate witnessed private equity investments of $2,308 million in YTD 2020. Should one add real estate stocks to portfolio now?

Real estate sector has underperformed significantly over the last 5-6 years. Add to that, there have been massive change in regulations in form of RERA etc. This has led to significant consolidation in the sector. This augurs well for medium term prospects of the sector, and we remain positive on real estate and building materials (cement, pipe, tile, electricals etc).

Q: After mini fiscal package announced by FM recently, do you still expect more such measures from the government to stimulate demand?

After the COVID induced lockdown shock, the economy needs a feel-good environment where customers loosen their purse strings for the virtuous cycle of higher spending leading to more capacities leading to more employment and higher investments to start. We would therefore welcome any moves by government to provide the feel-good catalyst for households to spend.

Q: What are value buy sectors now which can double investors’ wealth by 2022?

Equities are non-linear asset class, there will be periods of up and down and hence we don’t advocate investors to look at such short-term horizons while evaluating sectors. Sectors which we are positive on in some of our portfolios include home building, cement, gas sector, companies that are beneficiaries of financialisation of savings, auto & auto ancillaries etc.

Q: What are your expectations from September quarter earnings and do you think September quarter earnings will set the direction for the market going ahead?

Global exposed sectors like Technology, pharma, chemicals etc may demonstrate sustained earnings momentum. On the domestic front, there may be need for additional disclosures by various lenders as their reported numbers may be influenced by these factors (restructuring, Supreme Court directive of not tagging NPA etc). Many sectors like auto, consumer discretionary may report strong sequential improvement as they look to restock inventories in their supply chains ahead of festive season. Overall, we think earnings of listed companies may show an improvement over the June quarter.

Disclaimer: The views and investment tips expressed by investment expert on Moneycontrol.com are his own and not that of the website or its management. Moneycontrol.com advises users to check with certified experts before taking any investment decisions. Credit: MoneyControl

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