India’s sixth-largest mutual fund manager said the pain is not “completely over for automakers, consumer goods makers, telecom, pharma, and metal companies and they are likely to see further pressure going forward”.
“Just by looking at the market earnings growth, you may be able to assess the portfolio earnings growth, which is what we are focusing on. We have been underweight on auto, fast-moving consumer goods, telecom, pharma, and metals. These sectors have shown pressure in the quarter gone by and are likely to see more pressure,” said Harsha Upadhyaya, chief investment officer (equity) at Kotak Asset Management Company Ltd., which manages funds worth more than Rs 1.6 lakh crore.
Even in this festive season, the inventory will not correct completely for automakers, Kotak Mutual Fund’s Upadhyaya said. “We have been seeing consistent production cuts in the auto industry. The pain is visible.”
Some Key Pointers
- Significantly cut position in the early part of 2018, and continue to hold the underweight position.
- Started going underweight on automobiles somewhere around March-April. For previous five-six years, had a significant overweight on the basket.
- The earnings trajectory for mainland indices is not giving a complete picture.
- There has been a downgrade in expectations of earnings growth for Nifty from 24-25 percent year-on-year to 10-15 percent for FY20.
- When normalized by excluding heavy loss-making companies, Nifty actually grew at about 12 percent against only 2 percent estimated for the first quarter.
- There isn’t going to be any aggressive buying, but one can expect stability.
Upadhyaya expects a “real up-move” in the market only when the economy starts gaining momentum. But that’s still some months away, he said.
India has been grappling with a prolonged slowdown as people are buying fewer biscuits and shampoos to appliances and cars. GDP growth tumbled to its lowest in 20 quarters in the three months ended March 31 and is expected to further decline in the June quarter of 2019-20. Overseas investors continue to flee, leading to a selloff in stock market.
The government on Friday, however, announced several measures to revive economic growth from a five-year low. That included a rollback of the tax surcharge on foreign investors and an immediate infusion of Rs 70,000 crore to boost capital of banks.
“The broader market has corrected quite sharply in the past 18-24 months. There is a lot of value in broader markets, but one cannot be too aggressive and make large investments now because there will be some delay in the economic turnaround,” Upadhyaya said. “Until that happens, markets will remain choppy but we are advising investors to not lose hope and invest with discipline.”