Talking to ET Now, Sachin Shah , Fund Manager, Emkay Investment Managers , says if one takes a little longer term perspective of next two-three years, we are hopeful that the earnings will actually come back.
With markets appearing lacklustre, we are looking for reasons to progress from here on. A lot of people are calling markets a bit expensive. How are you looking at the overall valuation versus price equation?
Clearly, there is some bit of valuations where you can say that it is running a little ahead of time for sure because earnings have yet to catch up as we all know. But of course, if one takes a little longer term perspective of say next two-three years, we are quite hopeful that the earnings will actually come back. We believe that the earnings should start playing out in the next year, may be sometime early FY19 itself. We are quite hopeful on that and markets always discount the future. I do not think that we are too much worried about that part but of course at this point in time, markets are definitely running little bit ahead of time for sure.
You seem to be very upbeat on the auto sector as a space. What is it that you like within that sector and what kind of earnings growth can you see?
Going by the monthly volume numbers, this is one sector which has been doing very well and that is across all the categories — be it passenger vehicles, two-wheelers, four-wheelers, commercial vehicles, three-wheelers, tractors. We strongly believe that with the kind of consumer spending we are seeing in this space, discretionary spending will continue to go up because of the demographics and the consumerist behaviour that we are seeing. In the next two, three, four years, this is one space where the earnings growth will be very strong, may be in the range of at least 15-20%. We definitely like this sector a lot.
Talk to us about the new fund which you guys have raised – the AIF. What will be the philosophy there? How much funds have you managed to raise there and what is the plan for deployment in this kind of a market which is optically looking a bit stretched?
A little less than three months back, we launched our maiden AIF category three and this is a five-year close ended fund, mainly investing in the mid and the small cap companies. It invests essentially in the space where the market cap is in the range of Rs 500 crore to 5000 crore or companies having a market cap in the rank between 300 to 1000. So the first 300 companies or the top 300 companies ranked by market cap will probably not be a part of our portfolio. It is going to be a largely a bottoms up kind of a thing and we are very happy to share that we have got a very decent response in our filing with the Sebi. We had mentioned that we would like to raise close to about Rs 200 odd crore and be happy to inform that we have got a response beyond that. We are on the verge of closing that fund and we have got commitments of more than Rs 200 crore from high net worth individuals and corporate clients.
What is your outlook on the logistics sector? Do you believe that the overall GST led transition is going to be beneficial for the space?
We strongly believe that the big unorganised to organised player is one sector which will benefit big time because of the GST and particularly with the e-way bill coming in, many states in the next few months should be hugely beneficial for this sector.
The kind of the compliance that is going to be required for the GST input credits and those kind of things every company would like to get associated with a logistics player which has a lot of processes and systems in place.
With the shift from the unorganised single truck owners to small time logistics players, we will see a lot of business moving to very large nationalised players. Companies which have invested in technology for all these years and who have been very prudent on the compliance side, should actually gain hugely in terms of the market share in the next few years.
How much probability would you assign to the FY19 earnings? Index earnings would actually be between 15% and 18% and in the broader market, if BSE mid-cap or NSE mid-cap is any guide, it can show anywhere between 20% and 25% earnings growth right now?
I strongly believe that the earnings growth overall will be very good but if you are going to look at the Sensex or the Nifty, it is not something that we really look at.
What we really look at are the sectors that we really like, the companies that we like and over there, how do we see it. As I said, I like auto and auto ancillary, logistics or some of the companies within the private sector and the banking space or some of the companies even in the power utility space or say even on the leisure holidays or hotel side. We believe that the earnings growth over here should be fairly strong, not only in FY19 but if I take the next three years' CAGR, FY19-20-21, we should have a high double digit earnings growth over there.
What is the outlook on banks?
Within the banks, private sector banking and the NBFC space is something that we really like but I tend to agree with what you were saying earlier that the valuations are a bit stretched at this point in time.
Any volatility which actually comes in the markets in the next few weeks, months or whatever may be a better time to actually look at them.