I think to some extent yes, but having said that as we have mentioned earlier also, the technical factors were in favour of the market at least not falling. Probably what the market is basically seeing is that there might be surprises going ahead. So we are not saying that this rally is going to continue forever. Obviously, there is merit in saying that it might pause for a month or so, but the market sometime discounts fundamental in advance. So you might be in for a surprise going forward.
So in the near term we have seen that the market has been a little directionless at least when it comes to the Nifty 50 names. Does it seem like the market is now fearing a rise in crude and commodity prices which no one has apprehended till now?
There is definitely merit in saying that crude ultimately is going to impact the market, but you have seen in the past that higher the crude prices, higher the market. On the first point which you mentioned about the Nifty, probably the valuations of Nifty stocks are now at a substantial premium to the midcap counters and what you have seen over the last week and the attention has been shifting from only the top 30, 40, 50 names to the broader market. So it is possible that even though the Nifty might correct a bit, the breadth of market might continue to be stronger than the Nifty or the Sensex.
If I look at your current portfolio classification, you are overweight on financials and you are underweight on IT. Why is that?
I do not think we are significantly underweight on IT. At the same time we have been cutting a bit of IT for two reasons. One is obviously they have been a very good performing sector. So definitely it makes a sense in cutting it little bit. The other thing obviously as the rupee has been appreciating which is again something which has never happened in the past that the crude prices are at $135 or $125, expected to go to $135, and the rupee is still appreciating. So probably that is only a technical correction. We still continue to like the IT story from a medium to longer-term perspective. Financials - they are last segment of the market, the last segment of the economy, at least our internal research points to the fact that despite the increase in inflation and tight liquidity, the profitability of the banks continue to be very strong and liquidity has already started to ease. So we have received like over Rs 20,000 crore in a debt scheme in the month of April and that clearly is a sign that liquidity is ultimately easing.
The street is expecting a 16% to 17% earnings growth for Q4. Is that already priced in into equities?
I think the earnings growth overall should remain in this range. If you see the Nifty, we have 50% approximately of the stocks which get impacted positively by higher commodity prices and 50% get impacted vise-versa. So the Nifty or the index earnings as a whole might continue to be very stable between 16% and 20% and we do not see any risk there.
If I look at your performance and Reliance Growth, the fund which you manage, why is that fund suddenly underperforming?
I do not know where it is underperforming. Frankly, see the way the fund is being managed, the basic philosophy is that it should do well over a longer period of time on a risk adjusted basis. So we were actually doing some study because this question keeps on coming. It is underperforming for the last three months to six months, yes. One reason is obviously the fact that only the index stocks have been performing in the last six months and by nature 65% to 70% of the portfolio is invested in outside the index stocks, and we are very sure that once this second-tier stocks, the midcap stocks start to catch up, which is already happening in the last one week, then we are hopeful that it should be back on track.
The other thing is what we do is we take periods which are representative of both the bull and the bear cycles and we did that. So from 1995 to 2000 the fund comes as No.1 fund. From 2001 to 2005, the fund again comes to be among the No.1 or 2 and from 2006 and 2010 also, it is among the top 10% of the quartile. From our perspective, I think we look at periods which incorporate the whole cycle rather than just taking six months or one year and from that perspective I think the basic philosophy of the fund has been maintained. The portfolio is very very good. We are quite confident in the stocks which we own and God willing, they should continue to do well going forward.
Source: www.economictimes.indiatimes.com
Thanks & Regards,
Maulik Doshi
DENIP Consultants Pvt. Ltd.
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