Diversify Your Investments

Amit Khurana
Head of Equities & Head of Research
Dolat Capital

We believe that FY15 will possibly have better earnings growth than FY14 and FY13. There is a sense of apprehension that there could be a repeat of last year’s dramatic attack on the rupee and the fall in the market, which was pretty sharp. We do not think this is an ideal scenario that we would like to place our bets on, unless there is a dramatic event on the political or global front. We believe that FY15 will be a stabilising phase for the economy and earnings and for the markets in general. We are not outright bullish, it is a situation where we are looking for corrections to buy our preferred names and that is how we are positioning ourselves. We are not chasing valuations and not chasing stocks at any price. We will wait for the right levels to come. From the emerging market perspective, India is a better place because we have been able to control our current account deficit and expenditure.

On the earnings front, the numbers were in-line with the expectations. We did see some positive surprise , though I think one negative was a few PSU banks where we saw the GNPA moving little higher than what would have been our comfort level. I would say that there were more positive surprises than negative. I guess the markets have not reacted to those in a very significant manner because they have moved up quite a bit. What is happening is that you see such divergence that stocks which are doing well continue to do well. So there is an out-performance in that sense. And, stocks which have not done well continue to be out of favour.

Talking about currency, there has been a bit of a surprise to us in the last few weeks. We suspected INR to be under pressure, maybe closer to Rs 63-63.5. In spite of the FIIs selling in January, we have not seen the rupee being as much under pressure as we suspected it to be. To that extent it is a positive surprise, but going forward, our FY15 estimates is around Rs 61.5-63.5 kind of a scenario. I think below Rs 61, the RBI will make sure that it does not appreciate too much and beyond Rs 63.5-64 level, they will pull the trigger again and start selling USDs. Of course, there is a big event in May, which can swing the INR quite volatile or for that matter any other global event could come into play. If we get some positive results in the month of May post the general elections, then we think that the INR could probably be stronger than where it is today.

I think that interest rates have more or less topped out. We are not building in any further rate hikes by the RBI from now onwards. We believe that the inflation data will continue to soften over the next couple of months and that could provide some respite. We are now building a scenario of a rate cut in the second half of FY15. We think that April will be a status quo and the next policy becomes due in June. The RBI will probably wait for the new government to present its budget and the fiscal policy before taking a call.

Talking about markets, we believe that the election will be a big trigger. So, in terms of valuations, we are perfectly poised at 13x FY15. It becomes very cheap at 11x while 15x-16x starts looking expensive in current scenario. So you could go either ways. But, with the general election being around, we believe that it will be in very broad range. The worst case currently looks like 5600-5700 on the Nifty and 6400-6500 on the upper range. So, we are poised right now where we can go either ways. The second trigger, which probably people have now started taking a note of and observing, is what happens if China slows down in the next couple of quarters. If data from China starts deteriorating then that could have a huge impact on the emerging markets.

We have our sector picks, what we call our preferred names. Within IT services, on the Large- cap, we have a preference for Infosys at this point of time. We also prefer Oracle Financial Services. In the Mid-cap ITs, we like NIIT Technologies and Mphasis. In banks, we prefer City Union Bank and in the PSU banks we favour Bank of Baroda as it has held up pretty well on the quality of the assets. Other than that, we have preferred HDFC bank for sometime now. In the auto sector, we prefer Hero Moto. In Mid-cap we like Automotive Axle and Balkrishna Industries. In pharma, IPCA Lab and Lupin are our pick, while in the energy space we only like IGL. In the consumer space we liked paints as a sector and continue to do so. Berger Paints comes into play here and Pidilite amongst the Large-caps.

As a generic advice to the retail investors, I would say, go through the mutual fund route and try and park money for at least 3-5 years. I know it is easily said than done as people have not made any serious money in the last 5 years. However, I do believe that equities, as an asset class, has to be in your allocation of managing money and you should take a longer term view. Don’t put all your money in one scheme or in one fund house. Educate yourself, it’s your money.