Prudent to be a stock picker than take broad sectoral call, says Sundaram Mutual Fund

S Krishna Kumar, CIO equity at Sundaram Mutual Fund is of the clear view that market has started discounting better quarter on quarter numbers along with some positive signs in the economy. Economic fundamentals are showing signs of recovery with improved production, improve throughput across factories. The consumer is also seen coming back and the non-banking financial companies (NBFCs) are on a much better wicket in terms of access to funds, interest rates etc.

Globally too, there is a lot of stability in terms of geopolitical tensions or trade war and things seem to be settling down, said Kumar in an interview with CNBC-TV18. "Liquidity is quite ample, globally rates are soft and purchasing managers index (PMIs) across the globe is also improving. It is all a very healthy sign," he added.

"Emerging markets (EMs) in this time period would be a good outperformer and within that a story like India with a broad-based recovery is something that is interesting," he said, adding that foreigners are quite actively participating in the Indian markets, which makes it a good story in the next one-two year timeframe.

Sector specific, talking about banks, Kumar said, “You are seeing a lot more broad-basing in terms of interest levels in various banks. However, there are some banks which have had very stable and steady growth over the many years and would continue to do well but at the same time, the relative outperformance would come from a lot of good quality beaten down names across the sectors in NBFCs etc., which are now bouncing back."

"I think there is going to be a fairly strong shift that would play out where you see outperformance coming back to many NBFCs, which are now back in the game with access to capital and lower cost of funding,” he added.

On the retail side, consumption in pockets look weak but is broadly holding up pretty well, he said. So, going forward this year, one would see strong stories in consumer, retail, banking, NBFCs play out rather than a broader trend of outperformance that you saw earlier, he added.

"The way to go ahead in CY20 would be to pick best ideas across sectors and try to bet on them rather than to take a broader sectoral call,” he stated.

When asked about the cement space, he said, “First half of every calendar year, the sector does well because construction activity is at a peak during the summer months, and also the fact that right now infra spend is starting to pick up, a bit of construction activity is on the upswing  and industry capacity addition is slowing down."

Slow capacity addition would result in supply tightness in the next six-twelve months, which in turn could augur well for the prices and help support cement sector valuations, said Kumar. The house would prefer to be very stock specific and play stocks which are more regional focused based on dynamics across different geographic regions than to take a broader sectoral call, he said.

When asked about his expectations from the budget 2020, he said,“The street is looking forward to a story from the budget - a story which is realistic, which acknowledges the fiscal strain and which talks about a path to get out of the fiscal strain through things like divestment, aggressive asset monetisation, improved climate for foreign direct investment (FDI) and supported by promise of making rural incomes better."

"So, a combination of both fiscal push and ground level improvements on the rural income side would be appreciated. Income tax cuts, capital gains tax etc are good sentiment boosters but lot more needs to be done at the ground level for the masses,” said Kumar.