Talking to ET Now, Anshul Mishra, Equity Fund Manager, Union AMC says he is overweight on retail oriented private sector banks and has avoided public sector banks.
Edited excerpts:
ET Now: Whats your perspective on the show of the markets? What exactly is going to be the direction, and if you are expecting an imminent correction in the market? Do you believe that it would be good times to buy on dips?
AnshulMishra: We might see some kind of volatility, especially this year. The main reason is that the last 1.5-2 years, we have seen market running up, but the earnings have not really caught up. So this year will be a year, where the earnings catch-up will happen, and there are a lot of enablers in the form of global noise as well as domestic political uncertainty. But I think once that is through, probably we will see the next leg of upmove in the market.
ET Now: Consumption is a theme that you are clearly betting on, and I believe it features on your list as well. What is the long-term story looking like for the consumption, and are there any particular type of companies within the space that you would bet on? What are some of the key triggers of growth drivers that could likely benefit the space?
AnshulMishra: The consumption front would be very business specific, it could be front ended, it could also be through financing. So when we say retail oriented private sector bank that also feeds into consumption, so in the entire value chain there would be pockets of opportunities where we feel one invest, there is good amount of gains to be made. So that is why we are very business specific. The entire value chain need not be specifically FMCG. So that is our perspective from the entire consumption theme.
ET Now: You are getting more confident that earnings will start coming in. What is your hypothesis on what market is making of the earnings recovery, and the actual earnings recovery? Do you think from here on it will be very stock specific where earnings growth is or you think one or two years things could remain rangebound?
AnshulMishra: Now cyclicals within the metal space is something that is consistently delivering good numbers. So that space would continue to deliver, but then there are other sectors within that you would have pockets. For example, when we say financing, it across the board might not deliver on numbers in terms of acceleration, but within financing, you can have probably commercial vehicle space that can deliver much more. So that is why there would be pockets of opportunities within broader spaces and there would be certain broader spaces like cyclical, which will continue to do well.
ET Now: Let us talk about banks. Give us a sense as to how you have read into the overall mess that has taken place in the public sector banking sector. Does this mean that now we are likely to see a complete shift? Would it be the private sector banks that will continue to be looked at more favourable, or the situation is likely to abate?
AnshulMishra: As a fund house we have been overweight on the retail oriented private sector banks, and we have generally avoided public sector banks to a larger extent. But on the recent mess that has come up, I would like to say that as a fund house we would like to price risk in the book, but we do not like issues that have recently cropped up, because that is something, which cannot be priced in.
It is governance related issue and system related issue, so we are more inclined to pricing risk in book and accordingly identifying what is the fair value and entering at a point of time where we see returns can be delivered to the shareholders. But specific to the issues that have come off late, we are not very inclined to looking at such banks.
ET Now: One section of the market got terribly derated (Oil marketing companies). If you pull up the HPCL, BPCL, IOC, graph over the next one month or three months basis, you will see that they are down some 10-15 per cent on fears that marketing margins would come under pressure. What is your call on the energy stocks, be it OMCs, gas or the large private sector refiners?
AnshulMishra: There are certain pockets within the gas, which are very interesting. Specifically from an OMC point of view, all three OMCs are very different in terms of the kind of capex that they have done and the kind of ROAs that they can generate in times to come. So we are invested in companies where we feel the acceleration is significantly higher, because they have invested over a period of time. So it is very company specific rather than space specific, but gas definitely looks better than the OMC and the rest of the space.
ET Now: What percentage of your portfolio, which you have in your fund, is devoted towards larger midcaps? Also, within the midcaps, what kind of themes do you like?
AnshulMishra: On larger midcap front it is very stock specific. So there are no sectors per se across our portfolio, it is purely bottom up approach. We have tried to identify what could be the intrinsic value, what is the kind of return potential that particular space offers and what is the kind of system and processes that the company has in terms of delivering value to its customers. So that is our focus area, and based on that we have identified pockets. So there is no sector reflection there, but there is a lot of high corporate governance, low leverage, high quality business reflection there.
ET Now: Whats your view on the cement sector? Are we seeing convincing recovery or pickup in volumes? Is there a case for now this sector looking strong based on fundamental factors?
AnshulMishra: Cement as a space has drawn comfort from the real estate sector to a larger extent, and ever since GST and RERA have come in, there has been some amount of impact on the volumes on a broader basis. But yes within that also with the push on affordable housing, with the push on infra, there are numbers that are pushing upwards. There is a favourable base now, so moving ahead, there are lot of tailwinds that can lead to good numbers on the cement front, but cement apart from the top-line numbers also need to one needs to look at the raw material how it is panning out so considering all of that it is not, as of now it does not appear to be very attractive space in terms of long term return potential but at a certain valuation, at a certain intrinsic value as and when it comes we feel that the return potential would be there and we would be looking at that space. So right now we are underweight predominantly on that space.
ET Now: What is your call on pharma names? Last six-month graph shows that a lot of pharma names have rebounded quite a lot from 52-week lows. Do you think 2018 could be the year of pharma?
AnshulMishra: In pharma, we feel that there has been serious value erosion over the last five years, and when I say value erosion, I am talking in terms of business. Business dynamics, both in terms of how they operate, as well as how their customer perceives them, is something that has changed. That change in business dynamics needs to reflect in the price of stock over a longer period of time. What we can see probably next year is that there could be a bounce back, but as a long-term investor we are closely watching how this business dynamic changes, where it settles and then accordingly at a right price we will take a call as to enter this sector. This is another sector where we are underweight.
ET Now: What is your sense on the overall capital goods space, are you seeing things on ground turning around based on the kind of commentary that we are getting from some of these companies within the space? Is there a clear case for fundamentals seeing a sustained improvement what are you pencilling in by way of earnings as well?
AnshulMishra: So capital goods is an interesting space, within that also there are opportunities like road is a sector, which is continuously evolving, continuously seeing execution happening, order book happening. So according to us that is a space that is very interesting. Other than that within capital goods, we are seeing traction in other fronts. There is metro execution that is happening so as I said there are different spaces where there is execution happening on the ground and that is the kind of feedback that we are getting. As investors also we are trying to identify the right value to enter in such spaces so that long term return can be generated so that is how we are looking at it.
ET Now: We spoke to you about so many sectors but at your fund level in terms of exposure and stocks construction of your portfolio or personally over the next one to two years period what sector do you think provides best opportunity on a risk reward basis on earnings rebound basis or even valuation basis?
AnshulMishra: So sector would be relatively difficult but what we can say is automobiles as a space is very interesting predominantly because that is a secular story and if a business is available at a reasonable price then the return potential can be significant with not equivalent commensurate risk. So that is the way we are seeing it within the automobile space, commercial vehicles is a very interesting space and within commercial vehicles you have the front end commercial vehicles, you have financing of commercial vehicles and you have the ancillaries that supply to them so this entire value chain has lot of potential and if they are available at a reasonable price according to us over next two to three years there is good amount of return that can be generated.
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