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Market will continue to climb the wall of worries: Sonam Udasi, Tata Mutual Fund

For us, financials continue to be a clear favourite simply because if you are expecting an economic recovery you do expect credit growth to pick up next year.

ET Now|
Dec 13, 2019, 05.07 PM IST
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Promoters or companies which are not too pledged, where businesses are fine, maybe near term there is a revenue profit pressure -- those companies or segments are likely to become stronger as the news starts to improve over the next few months, says Sonam Udasi, Fund Manager, Tata Mutual Fund. Excerpts from an interview with ETNOW.

How are you analysing the way global markets have become risk on? Do you think India will whole-heartedly participate in this rally now?
Global factors were always in your favour with oil being where it is. Globally, there is extreme liquidity. Your own internal numbers on Indian macro were not looking very good and it is out in the open that growth is not so great. The good thing is that the government has taken note and every week or every day, we are seeing measures to boost growth. If there is such a policy action on the ground, markets will continue to climb the wall of worries going forward as well.

How are you analysing the market valuations right now, particularly the broader markets?
The broader markets have a lot of catch up to do. While Nifty may look all-time highs, the broader market is still struggling. While we have seen the markets broadening out a little bit in the last four-five months, especially post the tax cuts that were announced, there is still lot of value in the non-benchmark stocks.

Within that, our own sense is that the promoters or the companies which are not too pledged, where businesses are fine, maybe near term there is a revenue profit pressure, those companies or segments are likely to become stronger as the news starts to improve over the next few months.

How are you analysing the entire PSU basket perking up. There seems to be a view that because they will be able to work very closely with NBFCs, credit growth will come back, at least among the larger banks like SBI, PNB. Any thoughts there?
The largest banks stand out. They have merged subsidiaries within themselves. There is a lot of clawback of money coming back from resolutions. Their subsidiaries are doing quite well. That is one clear focus area for us. Among the other PSUs, it is more a wait and watch because all said and done, five consolidations are happening and five mega banks being created. I suspect that more clarity is needed on the asset quality picture in the final space.

It is very nice to make sure that NBFCs get a reprieve but what is the cost and whether on the longer term it makes ROE or ROA for some of these PSU banks? We are not very sure about those but we are very clear that the leaders should benefit.

Do you think the aviation data is showing green shoots of recovery?
Any data which is positive I will take as a green shoot right now because we are grasping at straws. It is a sign that possibly, things are improving. Also when we talk to auto experts it is becoming very clear because BS-VI is sort of on its way and there is an expectation that on-the ground demand should sort of pick up from consumers because they are getting decent discounts in some of the pockets.

My expectation would be that going forward, as you get more data on rural side since rainfall has been pretty robust this year, it will start to get clearer and that is why the market is in a phase where it is now willing to climb the wall of worries. Structurally, you know data has been bad in the price for the broader market while leaders are still at all-time highs. As data starts to improve, things should get better.

The market was a bit concerned some time back that probably the government is not paying as much attention to the things in the economy as it should. Then a slew of reform measures were announced which may also take some time to come into effect. How do you analyse this?
It is very clear from this that the economy is one of the topmost agendas for this government. There is a clear understanding that things need to improve faster and that message needs to go out. Also, as the government, you need to send out a signal that we are pro growth and we are looking for ways to create jobs and make sure the rural economy picks up. It is a very reassuring sign and that is why I am confident that market will continue to climb the wall of worries.

What are you doing in your portfolios at Tata Mutual Fund? Which are the big sectors you have gone overweight on in the last six months which till now perhaps were either equal weight or underweight?
For us, financials continue to be a clear favourite simply because if you are expecting an economic recovery you do expect credit growth to pick up next year. Also, with a lot of resolutions in the pipeline, asset quality issues for some of the banks would really allow them to report higher ROE and ROAs. So, that is one piece. Within financial services space. we have added quite a bit on the insurance and general insurance and AMC side.

On the other side, we are looking at building material space in a positive way. Realty and construction segment could start looking better. It might take a little bit more time but I think the bad news is baked in.

If one were to take a three to five-year call with a basket of stocks -- 20% smallcaps and microcaps, 40-50% largish midcaps and 20% mega caps -- how much do you think on a CAGR basis with the margin of safety or the kind of valuation we are trading at right now can we clock on three to five-year basis?
I do not agree with the view that large cannot grow as fast as the small. Globally, there is a trend that large are becoming larger because there is so much volatility and large guys do a better job of absorbing that.

I would tend to think that as an investor I should look at the potential. There are amazing stocks even in the largecaps and equal number of stocks in the midcap and smallcaps. What we are trying to say is that this is the category where we think next five years are looking good even if it is a small cap, even if it is a midcap and they have managed their balance sheets well happy to sort of participate. I think that is where we are looking at.

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