King November 12, 2019

We are definitely trading at a record high from the index point of view, but the majority of the stocks are still trading at multi-year lows. I believe that bottom-up investing, with a portfolio of 15 to 20 high-quality stocks will help, Santosh Kumar Singh, Head of Research, MOAMC, said in an interview with Moneycontrol’s Kshitij Anand.

edited excerpts:

Q) A big bailout package unveiled by the Cabinet on the real estate sector is something which was the need of the hour. Do you think the amount is enough or the government might have to put in more money to move the needle? Any stocks which are likely to benefit the most from the package?

A) The bailout package announced by the Centre is definitely the need of the hour as a lot of housing projects are stuck for just last-mile funding. The biggest positive is that this money can be even used for the stressed project which is either NPL or referred to NCLT.

One can always debate the amount, however, this is a) sentimentally positive for the home buyers and b) it would distress the balance sheet of the housing finance companies. This can help start the cycle of funding to the real estate sector. Also, if this experiment is successful we may see many more stressed real estate funds.

Q) Given the fact that we are trading near record highs – what should be the investment philosophy of investors.

A) We are definitely trading at a record high from the index point of view. However, the polarisation in the market over the last 5 years has meant that the majority of the stocks are still trading at multi-year lows. 
I believe that bottom-up investing, with a portfolio of 15 to 20 high-quality stocks will help.

Q) We are almost done with the September quarter earnings – how did India Inc perform so far in Q2. Any bright spots which one can look at?

A) At best, September quarter earnings has been a mixed bag, this is despite the fact that it got tailwind of tax cuts. 

Insurance and corporate exposed banks have performed better, we are also seeing some bright spots in the pharma sector.

Q) Largecap stocks have lead the rally on Sensex and Nifty while the broader markets still remain under pressure. Can we say the big wealth will be created in quality small and midcaps if someone is looking at a time horizon of 2-3 years?

A) I would totally agree that big wealth from hereon may be created from outside the 15 – 20 stocks which are quality, be it midcap, smallcap or largecap.

Q) With FD rates going dry what are the other avenues of investments which investors can look at if they are looking for something secure?

A) With inflation falling significantly overall expectations of investment returns from fixed income should be toned down by the investors. 

I would still believe that high-quality equity funds can be a good and secure idea for investors looking slightly medium to long term

Q) Do you think Realty and Autos could turn out to be the dark horse for the year 2020?

A) I would hope that these two sectors do well as a lot of economic revival would be either driven or first visible in these two sectors.

Q) The big question which most investors have – is the worst behind us in terms of domestic macros as well as earnings?

A) With the monetary policy and fiscal easing both working in tandem and inflation remaining low, I would like to believe that we may have one or maximum two-quarters of stress left on the consumption side. 

We may still be some time away from the investment cycle, however, once the consumption environment gets better we may see the start of the virtuous cycle of better earnings

Q) Which sectors are likely to lead the next bull run – Insurance, AMC Business or zero debt companies such as IRCTC?

A) I would believe neither of these, I think the next bull run would be driven by Corporate banks and some of the large NBFCs.

Q) What should be the strategy of investors with respect to MFs? Even though Sensex might hit a record high in November, most of the portfolios are still running into losses.

A) In an environment where Sensex has outperformed Nifty by almost 250bps in last one year, it becomes very difficult for MFs to outperform Sensex. 

The rally has been restricted to select few stocks whereas most of the MFs have broad-based portfolios.

I have reasons to believe that if the economy does well, which I think it would, MFs performance in the next couple of years would be significantly different from the benchmark.