Earnings of individual companies have surprised markets on the positive side, Nitin Rakesh, CEO, Motilal Oswal Asset Management, said. According to Rakesh, there were many investment themes that looked appealing. “If you look at it from purely the ability of corporate to grow, the economic growth, demographic profile, it doesn’t look like we have to worry about the overall trend of the market,” he said. “Overall we are still cautiously optimistic, the idea is not so much a call on the overall market, there are investment themes out there that are so appetizing that one has to make sure that your portfolio does include those things. So it’s not a question of just a top-down call on the market, it’s a question of whether is there an opportunity to create wealth even at these prices and we believe there is.”Here is a verbatim transcript of Nitin Rakesh’s exclusive interview on CNBC-TV18. Also watch the accompanying video.
Q: I believe you and Raamdeo Agrawal have been touring the foreign seas, what is the mood right now on India are people still as bullish as it seems to look on the good days?
A: One thing is very clear that over the last six-weight weeks especially after the big election news, we are on the radar and a lot of people have watched us with interest, but there is still a sense of apprehension for two counts, one while the feel-good factor is back and we are on the radar, they are expecting a lot to be done by the government as is the anticipation. So, for example, they would like to see some concrete moves on the reforms front, they would like to see some progress being made on the infrastructure front. The second apprehension comes from the fact that because of our short move in the market — 80% plus — suddenly there is a sense that the big move may have been over for now and there is a sense of caution so there might be some people who may have gone underweight over the last few weeks in terms of what their weightage was and what it is today.
The overall appetite seems to be good, it’s for us now to follow through with the actions on the reform front, on the infrastructure front, FDI — insurance is one of the big things that people are watching out for because insurance being such a large part of the global financial markets, there is a fair sense of disappointment over the past few years that we haven’t been able to move the reforms needle upfront. That one regulation on FDI, 26% versus 49% will have a major impact on the way we are perceived on a reforms perspective and also there are a whole host of other things that they would like to see.
Q: Would you concur that the big move is done for the moment and the market needs to consolidate here and catch its breadth or do you think it can run past its intermediate highs and climb a whole lot higher by the end of the year?
A: We have to look at it from an overall perspective; I talked about the same issue a few weeks ago when we said that whether the market is cheap or expensive, that depends on what your earning estimates are. So if you look at it from an earnings estimate perspective, while we were in mid-teens valuations, that seemed fairly valued but given that there are a lot of positive surprises coming out of the earnings both from profitability perspective and even some topline growth numbers. We may have underestimated the impact that earnings will have on the market.
We are probably the only country in the world where the overall aggregate profit number for this quarter the June ending quarter will be higher than the profit number in any quarter ever. Those are obviously things that get hidden behind all the noise. So if you look at it from purely the ability of corporate to grow, the economic growth, demographic profile, it doesn’t look like we have to worry about the overall trend of the market.
If we look at real short-term movements, whether it’s going to go past 4,650 before 4,200, that’s a question of momentum, volatility, capital flows and the tug-of-war between bulls and bears so that’s very hard to call. But overall we are still cautiously optimistic, the idea is not so much a call on the overall market, there are investment themes out there that are so appetizing that one has to make sure that your portfolio does include those things. So it’s not a question of just a top-down call on the market, it’s a question of whether is there an opportunity to create wealth even at these prices and we believe there is.
Q: Do you sense any hesitation in capital commitment because more or less aside from a couple of slip-ups, companies haven’t had any problem raising cash whether via QIPs or GDRs?
A: There is a fair amount of appetite for the right investment themes. For example, infrastructure seems to be one of those themes where before you could talk about the India story, people would ask you about what have you thought about the infrastructure opportunity in India. So for themes and stories that people have accepted as opportunities, I don’t think there is dearth of capital.
If you see the issue form the top down perspective, we are still seen globally as from a global investor’s point if view especially an institutional or a retail investor point of view, we are still seen as a small volatile market and exposure taken almost always is within the emerging markets, and within that BRIC was the buzz word and its now becoming BIC, so there is some money flowing into us in lieu for the markets but that is still very small exposure and that will only change if the stories that are being out there actually turn into reality, but I don’t think there is any dearth of capital and there is a fair amount of liquid money lying in the government treasuries globally and that will move into riskier assets as it has been moving and the level of comfort with the global economy is much better today. If we talk to people on the street in New York for example, everyone has a view that the worst is behind us now things look better, the banking numbers and the consumer numbers are looking better. So there is no dearth of capital or the fact that people are not willing to commit capital. The issue is: can you get the story out of there, can you make sure that there is follow-through on those promises?
A: There is a fair amount of appetite for the right investment themes. For example, infrastructure seems to be one of those themes where before you could talk about the India story, people would ask you about what have you thought about the infrastructure opportunity in India. So for themes and stories that people have accepted as opportunities, I don’t think there is dearth of capital.
If you see the issue form the top down perspective, we are still seen globally as from a global investor’s point if view especially an institutional or a retail investor point of view, we are still seen as a small volatile market and exposure taken almost always is within the emerging markets, and within that BRIC was the buzz word and its now becoming BIC, so there is some money flowing into us in lieu for the markets but that is still very small exposure and that will only change if the stories that are being out there actually turn into reality, but I don’t think there is any dearth of capital and there is a fair amount of liquid money lying in the government treasuries globally and that will move into riskier assets as it has been moving and the level of comfort with the global economy is much better today. If we talk to people on the street in New York for example, everyone has a view that the worst is behind us now things look better, the banking numbers and the consumer numbers are looking better. So there is no dearth of capital or the fact that people are not willing to commit capital. The issue is: can you get the story out of there, can you make sure that there is follow-through on those promises?
Q: There has been a lot of talk this quarter about how best to approach technology post its earnings where do you stand?
A: I am cautiously optimistic because there was so much pessimism in the prices, what we have seen over the last few days after the results is essentially a reversal back to the fair value; technology continues to be a clear play on global recovery, the initial signs are that it is stabilizing, the larger companies held the operating leverage so I would actually be positive on this sector overall.
Q: How would you position yourself in the telecom sector now given valuations and given the kind of earnings that you are seeing?
A: Bharti has continued to demonstrate leadership at every level and there is obviously a big event with the company because of the MTN merger but we have presentation of about 40% at this point in time so 400 million plus subscribers on the base of about 1 billion population, so there is still some steam left, the larger players obviously have a bigger leverage because of the cost and profitability factor. We would continue to stay focused on the leaders in this space but still stay invested in this sector.
Q: How are you approaching commodities as a space right now, not so much with what’s happening with energy but the metals basket?
A: The overall commodity space has continued to move up globally as well, so there is no reason to say that one has to take a cautious view so we have to ride the momentum of the commodity boom. Whether we are going to go back to situations that we saw two-three years ago, we have our doubts but clearly there are cyclical plays out there that we continue to focus on, every commodity almost, globally has been demonstrating a strong upmove so there is momentum and opportunity out there.
Q: Do you track Sun Pharma, it’s lost some of that premium valuations now.
A: The news emanating out of the US subsidiary is not that great and there will be an overhang on the stock, I haven’t tracked the developments of late, there might be some more days before we really see this one out of the woods.
Q: What are your thoughts on cement as a sector?
A: This is one of the sectors that continues to give positive surprises right from Q4 of last year, so we continue to stay positive, we have tracked a lot of the cement companies closely, we still believe there are opportunities across the spectrum in the cement sector including some of the midcap names out there. So the results will ratify this later on in the next few days but there is opportunity in the cement sector.
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