After a bullish 2009, what are your expectations for 2010?
Corporate results have been spectacular so far. Companies have strengthened their balance sheets. Stable politics could lead to reasonable policy momentum. IIP numbers have positively surprised. Overall, 2010 appears to be a year to look forward to. Having said that, rich valuations,rise in crude oil prices, faster than expected withdrawal of stimulus and liquidity evaporation from secondary market due to IPOs and dis- investment are some of the factors which need to be watched very closely. The Nifty and Sensex may not repeat the impressive performance of 2009 in 2010, but equities will be the best asset class nonetheless.
The world economy has shown prominent signs of recovery over the last few months l have to wait and see the effect of withdrawal of stimulus world over, theres no likelihood of any such scenario playing out anytime soon. While China has hiked its reserve ratio requirement by 50 basis points and some sections are expecting similar moves in India too, given the improved economic numbers, we believe the fears are overplayed, if not unfounded.
Theres ample liquidity, both domestic and foreign. FII ownership is recovering from multi-year lows. Traditional mutual fund schemes hold cash of over 10% of their AUM in many cases. Ulip collections too have been rising in the last quarter. Even if the RBI decides to moderately hike policy rates, lower credit off-take and adequate liquidity will ensure no immediate rise in bank lending rates. A scenario where inflation is moving northward and interest rates are not rising at a similar pace spells good news for the stock market.
In the first interview, you had mentioned that you would like to out perform the benchmark by 10-15%. As of date, you are bang on target?What would be your strategy now?
During Smart Portfolios Season-I, a cautious start by remaining in cash was followed by 100% deployment of funds towards the end of the season. In season-II, the strategy may be exactly the reverse. For a long period,I expect to remain fully invested. The strategy towards the end will depend on how the above mentioned concerns play out. Bottom-up, buy on dips and hold is expected to be the mantra.
As far as stock selection is concerned, my approach has been to be fairly diversified across sectors and stock categories; part allocation for trading provides an additional boost in returns. For the core portfolio,promoter track record, business potential and valuations are always some of the essentials I consider.
Your current portfolio consists mostly mid-caps? Could you explain this strategy? Also tell us about your outlook for the large-cap stocks? Have valuations peaked, or is there some growth left?
Two large caps, Infosys and Bajaj Auto, have declared stellar results at the beginning of the result season; they are on our fundamental buy list. We believe that some large caps will see earnings upgrades by the analyst community. However, even if one factors in higher growth for the Sensex and Nifty companies, these indices would trade at price to earnings of 16-18x FY11 EPS. In view of rich valuations in large caps,market liquidity aplenty and earnings momentum sustaining for many non-Nifty companies, we have taken aggressive bets in the mid-capspace. Part money is used for trading based on technicals and F&O
indicators. On the whole, we expect mid-caps to outperform the largecaps.
Which sectors would you bet on and which would you avoid?
Given the burst of liquidity, most sectoral indices seem to be rising in recent times. Broadly speaking, consumption and infra-related stories are expected to bring in better returns. Besides the conventional ideas, one can look for companies in auto-ancillaries and textiles(yarn manufacturers). From hereon, 2010 will be the time for individual stock picking rather than broader sector plays.