Don’t get carried away by rally, have a balanced portfolio

Though there is some bit of sectoral rotation, we will be banking on certain sectors like private banks and insurance, where there was a good bit of growth, says Devang Mehta, Head-Equity Advisory, Centrum India. Excerpts from an interview:

How are you mapping the market texture right now and is it time to dig out newer pockets to invest in or would you say hold on, keep the powder dry, wait for some dips to come in?
I think market is cheering the macro recovery due to the strong GST numbers and the PMI data. Also, the commentary by the RBI in which it kept the stance accommodative was cheered by the market participants. Of course there will be some bit of correction which will set in after such a fast and furious rally. But our stance here is that yes buy in tranches, second buy on dips and third the most important part is rather than getting carried away by the rally have a balanced type of a portfolio. By balanced portfolio I clearly mean the type of portfolio where one part of the market will be more or less consumption or healthcare or if I can count insurance as a part of healthcare. Also, you can play with a lot of banks or cement or some niche capital goods companies. Hence it has to be a balance of both rather than getting carried away by only cyclicals. It can be a mix of consumption oriented portfolio plus theme of economic recovery which can be played with good retail and corporate oriented banks and NBFCs.

We have had the policy this week. Also, PSU banks in particular have really played catch up and a lot of talk regarding valuations on that front is going on. Some are clearly avoiding them regardless of the buzz and others are taking another look. What would be your stand?
Very clearly we have been on the camp which normally prefers private banks and there too large type of private banks and we have seen how stellar the rally has been in terms of HDFC Bank or Kotak Bank in the last five-six months. So yes we prefer private banks. There will be trading rallies in the PSU banks if one is equipped to do that type of medium term trading, then one probably can get into it but otherwise we would strongly advocate large private banks along with insurance companies and certain NBFCs which again have regained a lot of market share. All these companies which are gaining market share are getting stronger and will rule the roost for the next couple of years.

We have seen huge moves as well across other PSUs whether it be in the energy space and also some in broader markets. Would you perhaps take another look at some of these or would you just have a blanket cautious approach?
Yes a lot has been happening in the PSU energy space, power generating space or power transmission space. What we have seen over the last 10 years is that if you just take out the history of these companies and see whether these companies have created wealth or even preserved wealth for a lot of stakeholders or rather shareholders, I think the answer is no.

There is a good dividend yield to be made on a lot of these companies but the question is whether India is a dividend yield market. We probably get 4 per cent, 5 per cent, 6 per cent yield in some of these businesses or stocks but those companies have come down by at least 40-50 per cent in the last two-three years. So I think clearly one should sort of try and avoid this space. There will be some businesses which are interesting in the gas space like Mahanagar Gas which again would be probably a little bit of a PSU centric type of a stock but it is a monopolistic type of a company. IRCTC is again a different type of business where it is sort of monopolistic in terms of its approach or an e-commerce type of company. These companies should probably be looked at rather than being into pure play PSU companies.

What are you going to be focussing on, I know you touched upon financials. As we have started to see increasing rotation and participation in the market, what do you feel will be the major trend to watch out for going ahead?
What will be very important in the medium term is to look at where the growth was being seen in the last quarter numbers and how growth could pan out in this third quarter. The numbers will start coming in early January. Our focus has been more or less looking at the companies and dissecting their earnings. We feel a lot of companies saw revenue growth in this environment and these are the companies which will sustain the rally. The most important part about this rally is now not getting carried away and getting into anything and everything. Though there is some bit of sector rotation which has been observed but we will be banking on certain sectors as I talked about private banks, some insurance companies where there was a good bit of growth. I think these are some pockets along with agrochemicals and speciality chemicals which we are still focussing on and we will keep on sort of accumulating them on any fall.

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