'Barring a temporary blip where stocks fell on verdict day, we are back to all-time highs.'
The banking sector faces only one concern: The weakness in deposit growth.
Otherwise, it is in good shape and available at attractive valuations, according to Rajeev Thakkar, chief investment officer and director of PPFAS Mutual Fund.
"I believe one cannot be optimistic about the economy while being pessimistic about banks," Thakkar tells Abhishek Kumar/Business Standard.
Will a coalition government lead to some valuation derating for India in the long run?
Barring a temporary blip where stocks fell on verdict day, we are back to all-time highs. There doesn't appear to be any derating due to the coalition.
Your flexicap scheme is nearly 15 per cent in cash. Now that the election uncertainty is over, are you looking to deploy the sum?
We did not hold cash in anticipation of the election outcome.
Opportunities are currently limited due to elevated valuations. For multiples to improve, fundraising is necessary.
Currently, the equity market is flush with fresh flows from the EPFO (Employees' Provident Fund Organisation), MFs, the National Pension System, and insurance companies, yet the supply of new opportunities remains constrained.
We anticipate better prospects once the private sector's capital expenditure cycle gains momentum and fundraising through equity sales picks up pace.
A revival in the government divestment programme could augment the supply of investable assets.
When do you see this happening?
Supply will emerge sooner or later. It's logical for promoters to sell at these valuations, and some have already taken that step.
Additionally, companies that have secured funding from private equity firms will be exploring opportunities to list on the exchanges.
Private bank stocks, which account for nearly 20 per cent of your portfolio, have been going through a rough patch.
Banking operates as a pass-through product. If the cost of deposits rises, lending rates will follow suit.
Therefore, I'm not concerned about net interest margins.
Moreover, the weakness in deposit growth isn't a structural issue but largely a result of liquidity management measures implemented by the central bank. Overall, banks are in good shape.
Is the overweight position in banks also a result of a lack of opportunities elsewhere?
In every market phase, there are pockets of overvaluation and undervaluation.
We tend to be overweight in areas where valuations are attractive.
I believe one cannot be optimistic about the economy while being pessimistic about banks. Economic growth relies heavily on banks lending to companies.
Your flexicap fund has grown multifold in size in the past few years and is now the largest active equity scheme. Is size becoming a challenge?
The fund's size appears substantial due to our limited number of schemes.
However, the impact on stock prices remains consistent whether we transact for one scheme or multiple schemes at the fund house level.
Our focus has historically been on largecap stocks, where the majority of the profit pool in Corporate India resides.
The top 100 companies contribute around 75 per cent of this pool, whereas smallcaps represent only 7 to 8 per cent.
What do you make of the fourth-quarter results?
Automobile companies have rebounded cyclically, experiencing increased demand and profitability.
The financial sector has generally performed well despite facing challenges in deposit growth.
Information technology services remain on a weak wicket due to a slowdown in global demand.
Capital goods stocks have run up in the recent past, even though the results now show meaningful growth.
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Feature Presentation: Rajesh Alva/Rediff.com
