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Good time to start making staggered investments in equities: Rishi Nathany

Puneet Wadhwa/Mumbai 08 Aug 12 | 10:48 AM

Rishi Nathany, CEO, Dalmia Securities spoke to Puneet Wadhwa on market outlook, rupee and crude oil prices. Edited excerpts:


There has been optimism built around the reform process post the new Finance Minister taking charge. How much of this will actually get translated into reality? Would you say that the markets have over-reacted to the developments? Why / why not?
The current Finance Minister is quite capable and experienced in running the ministry he has been allocated. It will have to be seen whether or not this optimism will translate into reality, but I do not think markets have over-reacted to these recent developments. The statements have definitely triggered hope about renewed efforts not only for reforms, but also for fiscal consolidation and we are hopeful that something concrete will emerge towards this in the near future.

What would you advise a person who wants to take a fresh exposure in equities at the current levels? Is it better to invest in debt or would you still prefer to remain defensive in the equity space?
It all depends upon how much exposure that person has in the equity markets at present. For people with no or low exposure to the equity markets at present, this would be a good time to start making staggered investments in equities. However, for those who are fully exposed to equities in terms of asset allocation, we would not advise to violate asset allocation principles by suddenly increasing or reducing exposure to equities based on short-term perceptions and market timing.

What is your outlook on the rupee and crude oil prices? What levels can we expect in these two in the medium-term? Have the markets factored in the worst?
Given the current depressed global economic situation, we do not expect crude oil to rise substantially from these levels, since it has already made up some lost ground after its recent fall. However, any fresh trouble in the Middle East could upset this view. As regards the rupee, we feel that a lot of negatives have already been priced in and we could see some recovery in the rupee on the back of policy action and foreign fund inflows.

Cognizant has surprised the markets with better-than-expected June quarter results that were stood above Infosys’ performance in the recently concluded quarter. How are you viewing the information technology (IT) space now?
While we do expect the IT industry to continue to do well going forward, we do not expect any outperformance from the industry at present. Currently we maintain a neutral stance on this space, since we do not expect it to maintain its high growth rates of the past, due to the depressed global economic environment.

How has the results season panned out this far in your assessment? What are your estimates for the full year earnings and have you toned them down given the economic headwinds?
While investment growth had already slowed down in the economy, we have now seen a mild moderation even in consumption growth rates, which is evident from lower volume growth of many companies. Economic headwinds and weak monsoons are definitely affecting industry adversely and we have toned-down our sales growth expectations to some extent. However, this may be counteracted by margin expansion if commodity prices continue to moderate. Therefore it is too early to revise our full year earnings estimates.

Do you think that there is value in the mid-cap space? If so, which sectors / themes / stocks would you prefer to invest given the valuations and the outlook?
There is definitely value in quality mid-caps. There are many such stocks which are available at attractive valuations across industries and sectors. Our strategy would be to take a bottom-up approach for such stocks, rather than look for sectors or themes.
 
Off-beat sectors like aviation, fertiliser and sugar have generated a lot of investor interest recently, especially given the results of SpiceJet and Jet Airways. What are your views on these three sectors?
The aviation sector saw lower competition and higher realisations in the last quarter. Lower crude prices were offset to a large extent by a falling rupee. Going forward, the aviation sector could continue to do well, if the realisations can be maintained.
The market was expecting some subsidy cuts in the fertiliser sector, but nothing much has happened on that front. The sugar space has definitely been buzzing, since weak monsoons may lead to lower production and higher prices. We are quite positive on this sector.

What are your top three contrarian bets (in terms of sectors) in the current market scenario, and why?

Sugar is definitely one for reasons mentioned above. Power is another space. We expect coal/fuel linkage issues to be sorted out and other reforms to also happen, especially after the recent grid collapses, since there is an ever-increasing demand for power in a growing economy like ours. PSU banks are also a good contrarian bet. The banking sector is attractively valued at present, and PSU banks are available at even lower valuations. We expect some rate cuts going forward, which should act as a positive trigger for these stocks.

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