Liquidity Has Been Stronger In The Macro Perspective

Given the upheaval in the economic fabric of the country, investors are going awry. They are looking for positive cues to take a plunge with financial investments. However, liquidity has been stronger in the macro perspective said V Srivatsa, Executive Vice President & Fund Manager, UTI AMC in a candid conversationwith Himali Patel

Despite the challenging economic scenario, and also the first earning quarter being below mark, what are the positive factors that investors should look at?

In my view, India is a very structural growth-oriented economy, and even if you look at the last data for 15 to 20 years, there have been times where three to four quarters have been impacted. But in my opinion, it’s more of a blip. We have never had a situation as I would say, for example, in the US or in Europe, or other developed markets where continuously for 20-30 quarters, we have seen momentum declining and bringing a kind of slowness in the economy. Therefore, I don't think the last three or four quarters have been any different.

If you look at various reasons, the most important reason is the fact that liquidity has been stronger in the macro perspective. Post the IL &FS crisis, there has been a very sharp squeeze in the liquidity, especially for the financial sector, and perceived weaker financial sector, like Housing Finance Companies (HFCs), or even some of the second line weaker asset finance companies.

Secondly, the government historically has been a very good spender both to consumption, as well as on the Capex side. We have had a situation where, because of the election, I think the spending had come down a couple of quarters prior to March, and it has started picking up now.

Thirdly, a combination of the above two factors and considering the fact that we have not had a good monsoon season last year, and most of our Agri prices are down; the market is assuming that this kind of a downside will continue for a couple of more quarters and not beyond that.

If that’s the theory that gets challenged, there could be some kind of a decline in the market. But otherwise, from a pure market level, a lot of the bad news is already there.

So, what can actually drive this forward? From a micro perspective, this year we will see a muted earnings growth. For the current year, we might see a closer to double earnings growth probably closer to double digit, but that will be misleading, because it would largely be led by the banks, where the credit costs are normalizing.

So, it's very essential for the markets to rebound as per the sentiment of the investors to improve. From a 12-18 months period; equity markets are quite attractively valued and one can take a fresh allocation towards equity and the current market.

Which are the sectors you are betting on ?

I specifically look at more of valuation as a key parameter. So, I'm looking at automobiles, corporate banks, select NBFCs especially on the housing finance side and also pharmaceuticals and lastly more as a contra-call, I am looking at metals and utility.

Any particular sectors you are avoiding for now?

I am avoiding consumers. While they have corrected but still the average valuation is high. And also, the kind of slowdown is not factored in there so that’s the sector that I am underweight of.

According to AMFI, the overall mutual fund AUM has improved in last two months, do you consider this as the green shots of recovery, post the IL&FS crisis?

Thanks to the investors’ education in the last twenty years, today we are seeing more investments happening when the markets are down. So, investors are realising that, they are for the long haul. And typically, when markets fall to these levels, they give kind of good opportunities to add on. So, one trend that we have been observing is that in the last couple of months probably there has been an increased allocation or interest in the mid and small cap funds.