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    Make uncertainty your friend, look long term: Vinay Paharia, Union AMC

    Synopsis

    Find out your asset allocation pattern and strictly adhere to it, says Paharia.

    The valuations in consumer discretionary are extremely attractive and they are not so attractive in the consumer staple segment. That is why we are underweight on that sector, said Vinay Paharia, Chief Investment Officer, , in an interview with ETNOW.

    Edited excerpts:

    You seem to be cautiously optimistic on the markets and that seems to be the sentiment at large. How does one navigate the market with so much uncertainty and a tad bit of jitteriness from investors?

    The way to tackle uncertainty is to make it your friend. Look at the long-term investment horizon. Find out your asset allocation pattern and strictly adhere to it. Our understanding is that investors should ideally not read too much in near-term uncertainties like election etc. But you are right, it is an important development. It has implications on near term economic growth and corporate earnings but that is about it. Over a period of time, it will normalise.

    You are overweight on consumer discretionary but underweight on consumer staples. Why?

    It is predominantly the valuations. Companies in both these sectors are top notch as far as business quality is concerned. Their returns on capital has remained meaningfully above their cost of capital but the key differentiator for us in both these sectors is valuations. The valuations in consumer discretionary are extremely attractive and they are not so attractive in the consumer staple segment. That is why we are underweight on that sector.

    What are some other sectors where you think have a comfortable or an attractive valuation at this point of time?

    Utilities as a space looks very interesting. Companies in this sector enjoy guaranteed returns on equity by regulators. Recently the regulator has kept the returns on equity almost steady for the next five-year period. The valuations are extremely attractive in this segment given the current level of interest rates. Utilities as a sector presents a very interesting investment opportunity and we are overweight that sector by the way.
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