Sunil Singhania is an Ex.VP -Equities of Reliance MF. He has been managing some of the top funds like Rel Growth Fund, Rel Diversified Power Fund among others.
What are the key concerns of the Indian market in the medium term ?
In the medium term, it will mostly be fundamental concerns. We have seen a big slowdown in a number of sectors. There is the old inventory of raw material lying around and there is a lot of marked-to market loss in that. Because of the demand slowdown a number of companies are operating at sub-optimal capacities. These two factors are going to put a lot of pressure on profitability. And there is also higher interest cost because of higher interest rates putting further pressure on profits. The results will be disappointing in the next two quarter. But the market already expects it and has already discounted it. It is not going to be an unexpected shock.
When the markets pick up, which sector will be the one to move first ?
Right now the call is that interest rates are falling and the economy is reviving. So the sectors to get impacted first will be the interest rate sensitives like construction, capital goods and to some extent auto companies. These stocks have fallen a lot and they would be the direct beneficiaries of a falling interest rates. But I would be more cautious and not get euphoric too early.
From a valuation perspective, pharma looks good with its significant entry barriers. They are big beneficiaries of rupee depreciation since they are export oriented and raw material costs have dropped significantly. This sector will grow by 15-20% over the next few years. (My note: I guess he is talking about Divis Labs ).
IT will not command the valuations it used to earlier. We dont see the problems in the US disappearing over the next one year. The IT exposure to financial services is quite high. The near term earnings may not be at risk due to rupee depreciation but the kind of growth which IT companies enjoyed a few years ago will no longer happen.
Source: Value Research Online