Indian markets have been facing volatility after the Union Budget amidst poor earnings growth and global macro cues. In an exclusive interview with CNBC TV18, V Srivatsa, executive vice president and fund manager- equity at UTI AMC. explains briefly about his take on the market and factors behind equities' slowdown. Edited excerpts
: 1. According to you, how will earnings growth impact the market this fiscal?
A large part of the earnings growth is actually coming from corporate-oriented banks. Although banks have a huge benefit of normalised credit costs, earnings growth will still be a challenge. In fact, earnings growth will be impacted due to domestic consumption, which has led to the slowdown in the last 2-3 years. Hence, sectors continue to remain under a lot of pressure. You won't see any upgrades in the next 2-3 quarters. Global equities are also on a weaker side, which is another factor that, I think, is fully yet to reflect on Indian equities.
2. Do you believe the market will consolidate in the near-term given all the factors mentioned above by you?
I believe the first two-quarters of this fiscal will witness market consolidation. Post that, a lot will depend on the consumption sector. We need to track the consumption space to see if it will be a temporary or a long-term slowdown (3-4 quarters). The market will only show recovery if consumption improves in the near-term.
3. Which sectors do you think are investment-friendly at the moment?
Based on pure valuations, some automobile companies are available at 4-5 percent cash flow yields which is good as they earn good returns. Currently, automobile stocks are at comfortable valuations and offer a fair marginal value of safety.
Apart from auto stocks, banking stocks also have decent growth profile. I believe there could be a big resurgence in banking space. Banks have a direct benefit coming directly from the NBFC space because banks with large mortgage portfolio will get picked up first as NBFCs fall out.
Good quality housing finance companies (HFCs) and life insurance companies will also be in demand as they have both have access to funding. In fact, life insurance space has a big levy of growth as penetration is very low. Also, India is a savings-oriented economy which makes us all the way more positive.
However, sectors that you must avoid right now are metals and cement. The metal sector should be avoided when it comes to investing fresh money because of its inconsistent tendency of experiencing global growth slowdown. Valuations are cheap in metal stocks but growth slowdown and range-bound prices are not attractive at all.
4. Why do you think foreign investors are pulling the money out from the Indian market?
It's very difficult to credit their behaviour as there are too many factors involved here. Global markets play one of the major roles here as 6-7 markets are already competing for the same money as India. For example, Brazil market is down 30 percent and China is down 20 percent vis-a-vis India, this means that there could be an elevation of money in other markets. If I look at key parameters like political stability then we are strong there. Meanwhile, the currency is also one of the key monitoring factors for foreign investors. In fact, the currency has been bringing in some returns to our corporate world in the past as it has been the best in last 5-6 years.
5. What investment tool (Equities, mutual funds or bonds) would you suggest given the current market situation?
In equities, out of 100 stocks, only 10 are outperforming the market. It’s extremely difficult and tricky for an individual to decide where to invest in equity. Coming to bonds, the key issue here lies in the liquidity, which is not sustainable. Therefore, I suggest mutual funds to be a better investment tool as the risk here is minimal.
I would suggest investing in a conservative hybrid fund, while on the equity side, multi-cap funds are doing well.
6. Which type of mutual fund is advisable to invest in?