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Be cautious in all largecaps but for these 3 sectors: S Naren - Each of the five business lines of Reliance Capital has been growing in double digits.
- overvalued and we have to be careful everywhere except in export, manufacturing and PSU sectors.Edited excerpts: When we spoke last, you said not to buy small and midcap stocks and buy largecap stocks. Largecap stocks have done exceptionally well. We believe that the market is approaching end cycle and in end cycle, markets can rally significantly. It is very difficult to predict the end of an end-cycle. In the â90s, an end-cycle in America lasted three years and in India in 2007, it lasted 12-15 months. This is a phase of the market where it is very difficult to predict what happens to the market in next three to six months.We have to be careful at this point of time because of market valuations of largecaps. With the exception of PSUs, export and manufacturing sectors, the rest of the market has become overvalued and consequently, we have to be careful everywhere except in export, manufacturing and PSU sectors. When you say rest of the market is looking expensive, will that include everything outside of exporters? It is very difficult for me to say it is, but broadly, at this point of time, one can see that majority of the stocks are trading at reasonably high valuations. Some of them on a market cap basis have also become quite expensive. Today, we have a scenario where $18 billion trade deficit was recorded last month and data was available for that. Now $18 billion of trade deficit is a very large number. It is much better to be in export manufacturing and PSU sectors at this point of time because they are the gainers out of very high trade deficit and a continuously depreciating rupee. I would say that there are individual stocks in many of the other sectors which are still okay. For example, corporate banks have underperformed for seven-eight years and therefore despite the recent rally, some of the corporate banks are not overvalued. But the real bargains are in export manufacturing and PSUs if you look at the breadth of the rally and the return over five years. Over five years, Nifty has given more than 100% but the midcap and smallcap indices have given 200%. At this point of time, the indices have done extremely well over five years and I would say there is need for caution at this stage.One theme follows another. In the â90s, there was the TMT theme, then came the infra theme followed by the small and midcap and growth quality theme. Now, we will have to move to the export theme given the quantum of trade deficits that we have at this point of time. But how would you play cautious in the market across all your funds? You have discussed how the export theme might be one area to look for an alpha. Would you also raise cash and allocate more to defensives which might be expensive and some of the private banks as they continue to perform? In many of our close-ended equity funds, we have a fairly significant hedge on our equity portfolios. In our dynamic asset allocation funds, we have some of the lowest equity weightages in last five-six years. In a few days, our August portfolio will be revealed and at that point of time, you can have a look at our net equity position in all our dynamic asset allocation funds like the Balanced Advantage Fund or the Equity Savings Fund. We would have one of our lowest-ever equity weightages in these funds. We are as defensive as we can be in the categories where we are permitted to be defensive. In all the other funds, we are essentially running group funds. We have to keep in track what kind of weightage others have in each of the funds and therefore we are not hedged for something like that. We do not believe that it is difficult to predict when the market will fall. One of the lessons I learnt in my end-cycle experience as a fund manager in 2007 was that I thought markets were overvalued in January 2007 and the market went up 20% after that. There is no reason why we cannot have another event where markets keep going up despite being overvalued. In our fact sheet, we published a valuation model which has gone into a slightly cautious zone but in 2007, the same valuation model after the valuation model touched where we are today. The market went up almost 15% to 20% in Nifty.The global setup says we are in the longest bull market for America after Second World War and even I know that you vvvwill not buy when I say that this time it is different. This time, there is an artificially lowered interest rates as well as a tax cut bonus which is coming from America. Some would argue that the circumstances also warrant some degree of renewed thinking?One of the best ways to compare the attractiveness of debt with equity is to look at the yield gap. On a yield gap basis, today the market is telling you that in India you have to invest in debt at this point of time and that too low duration debt. So, I agree that globally the market is in a big bull run and today there are significant moats enjoyed by some of the US technology companies but having seen markets for a long period of time, you do not know what causes to markets to mean revert. It is not as if markets in US are cheap. What I have learnt from Sir Franklin Templeton is to be careful of these words called âthis time it is differentâ. I will stay with that learning because it has helped me in 2007, it helped us in 2103 to give a buy call and it helps us to be slightly more cautious at this point of time. I will not use the word âthis time it is differentâ. I must say one thing that we have to keep in mind. One of the sensible steps that has been taken this time is not having oil subsidies as that spared us a Turkey like crisis. Indiaâs macro is in much better position than in 2013 and it is not fragile because we have allowed rupee to depreciate and allowed oil prices to be passed on. Otherwise, the current account would have shot up and then we would have had currency depreciating at a far more significant pace. Right now, we are all thinking that rupee has depreciated but over last five yearsm the rupee has depreciated lesser than most other emerging markets. I do not think rupee is a source of worry at this point of time. It is just that for four years, rupee kept appreciating or did not depreciate. The depreciation is in the last one year but I would say that it is very important to keep current account, fiscal deficit and inflation under control because in a world where US interest rates are being increased, we have seen fragile countries get hurt like Turkey, Brazil, Indonesia and Venezuela.How does one approach the market when you know that a genuine earnings recovery is round the corner and the surprise on the upside could be huge?Over the last five years, even without earnings, markets went up. Now that earnings are coming, there is no need for the market to go up further. We are not at valuations as cheap as they were five years back. Today on a trailing PE basis, Nifty is at 28. We are kind of positioned for some kind of an earnings recovery. I agree that if oil were to crash from here, there will be a bit of upside in all markets -- equity, debt and foreign currency markets. The biggest upside in the near term can come out of an oil crash and if that were to happen, our current account deficit disappears, oil comes down, rupee will appreciate and we will have everything going for us. But at a time when financial conditions are tightening because of rupee depreciation, interest rates going up and US interest rates going up as well, I do not think 28 times trailing or 22 times forward assuming a big earnings growth is a fair valuation.When you reach this part of the market, it is not as if market will fall from today. It only means that you have to be a bit more cautious. Last year, many of the people who were not cautious in small and midcaps, have suffered a lot. From here on, one has to be cautious in largecaps except for export manufacturing and PSUs which have not seen any rally over the last five years. Except in these areas, one has to be a bit cautious.Consumer companies are trading at trailing PEs of 70. We were bearish there when the trailing PE was 50 and now they are trading at 70 and we continue to be cautious. The reality is that none of us can predict markets accurately but we can predict that you have to be a bit more cautious than you were five years or three years back or even two years back.How would you look at the flow of SIP going forward from here? You have alluded to need for asset allocation towards fixed income as well. We just saw the yield hit an 8% on the 10-year benchmark. Are you advocating for SIPs to get into balanced and fixed income funds within your house properties also?Absolutely. Our view is very simple. If a person is going to do an SIP for the next 5 to 10 years, small and midcaps are the best areas to invest in SIPs. If people are unsure about how to continue, clearly SIPs in balanced funds or balanced advantage kind of category or debt is far superior to doing an SIP in small and midcap. If you are not sure of the length of the time of an SIP, we recommend SIP as a more conservative product.If people are looking to do 5-10 year SIP, it is much better to be in aggressive products. I would say clearly that one of the biggest problems of the mutual fund industry is that they are seen as an equity mutual fund industry, when they have many debt products. If every investor makes use of the mutual fund industry to invest in debt, particularly in low duration or dynamic duration products, the scope for the mutual fund industry will increase significantly. If you are seen only as equity mutual fund industry there are problems because markets are no longer cheap and over the next 2-3 years, there could be a cycle and then being only an equity mutual fund industry does not help. Debt is a great product. We see debt having much lower volatility over the next three years than equity.
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- Tue, 04 Sep 2018 06:24:24 GMT
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- Pakistani lawmakers to elect a new President
- National Nutrition Month being celebrated across country to mark the fight against malnutrition
- IMD issued severe weather warnings for Kerala in advance: Centre
- Lok Sabha
- Rajya Sabha
- Driver pulls baby out of the back seat after crashing in a high-speed police chase
- 03.09.2018 [16:42]
- 04.09.2018 [10:00]
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- 12 hours ago
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- The Hindu
- 11.57AM IST
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- Aimed at democratising mutual fund investments and expanding the overall market of investors, Paytm Money will gradually give access to consumers, beginning with those who had registered for early access.
- Chinese government wants parents to stop their kids from spending more than an hour a day on their electronics for non-educational purposes.
- Rajeev Misra, CEO of SoftBank Investment Advisors, is overseeing the process that has been on for a while now.
- The company now wants to raise $35-40 million to expand its offline presence, adding stores in Mumbai, Chennai and Pune by January.
- Most equity mutual fund categories have started to show the signs of revival during the recent market rally.
- Maharashtra: Cops recover expl...
- Recently, , Dorsey overruled a decision by his staff to ban the right-wing conspiracy theorist Alex...
- It was originally launched as a Windows-only beta app.
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- It may help in the deployment of emergency services and assist in evacuation plans.
- English, German, French, Spanish, Italian and Japanese have been introduced in this development.
- This comes at a time when he is facing harsh criticism for his new controversial plans.
- Good muscle health can help in leading an active lifestyle, and carrying out daily physical activities ably.
- The former skipper said that his little star ends up getting a lot of attention.
- Overconfident CEOs are 33 per cent more likely to get sued by shareholders.
- For many people, the day begins with a cup of coffee in the morning and ends with a bedtime snack 14 or 15 hours later.
- According to a recent study, reducing supine sleep may improve both maternal and fetal health.
- Prolonged uninterrupted sitting leads to health risks like cardiovascular disease, diabetes, and all-cause mortality.
- The singer shared a picture of their Mexican holiday and gave credits to PeeCee.
- Article at EconomicTimes.com with article id : 65666975
- Article at EconomicTimes.com with article id : 65666767
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- Article at EconomicTimes.com with article id : 65666799
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- Article at EconomicTimes.com with article id : 65667100
- Article at EconomicTimes.com with article id : 65666805
- Article at EconomicTimes.com with article id : 65665682
- Isro has a full-fledged IRS programme with a constellation of earth observation satellites, with the National Remote Sensing Centr (NRSC).
- Article at EconomicTimes.com with article id : 65666460
- Article at EconomicTimes.com with article id : 65666410
- Article at EconomicTimes.com with article id : 65664457
- Article at EconomicTimes.com with article id : 65664320
- Copyright:(C)Tue 04 Sep 2018, 11:55:532018Tue 04 Sep 2018, 11:55:53 Bennett Coleman & Co. Ltd, http://info.indiatimes.com/terms/tou.html
- Alarms go off in India's skies over a looming $1.9-bn sinkholeThe losses have been led by full-service carriers like Air India and Jet on rising costs and low fares.
- Banks brace for the mother of all haircutsBanks had loaned Rs 1.8 lakh crore to the power sector. They are likely to lose 60% of it.
- Rahul changes Cong's candidate selection processMaking the process more democratic, Gandhi has asked committees to get their hands dirty on the ground.
- 2 convicted, 2 acquitted in Hyderabad blasts caseCounter Intelligence (CI) wing of the Telangana Police had investigated the case and arrested five accused, all alleged Indian Mujahideen operatives.
- Copyright:(C)Tue 04 Sep 2018, 11:41:032018Tue 04 Sep 2018, 11:41:03 Bennett Coleman & Co. Ltd, http://info.indiatimes.com/terms/tou.html
- Debt will have much lower volatility over the next three years than equity, S. Naren, CIO, ICICI Prudential AMC, tells ET Now. Most of the largecap space is 65657170
- Trump takes on Sessions, Russia probe and the media in a week that could set the US' course for decades
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