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Election to give opportunity to invest or exit over next 3-4 months: Jinesh Gopani, Axis MF


Till the time momentum comes back on earnings growth side, we would have to live with the pain of consolidation in the market, Jinesh Gopani, Head – Equities, Axis MF, tells ET Now.

Edited excerpts:

Are you a little disappointed that global markets are keeping us back or excited because crude has cooled off so much?


Crude cooling off and rupee appreciating are big positives for India’s macro balance sheet. Crude coming off by 30%. Rupee appreciating is all very good for India. From a longer term point of view, if crude stabilises at this level, we will be in a much better shape and maybe after a few months, we will see the benefits coming out in terms of the trade deficit numbers and the current account deficit number.

We are more bullish at this stage than we were two-three months back when crude price was higher. Given the global market scenarios, too many volatile news around election will keep the markets volatile and hence we would expect the market to be on more of a consolidation phase till some of the events are over, after which we could see the return of momentum.

The earning season also has not been that great. There has been margin pressures because of the raw material pricing pressure. Either the growth or the margins were sacrificed. Till the time the momentum comes back on earnings growth side, we would have to live with this pain of consolidation in the market.

Volatility can come by due to the election risk in 2019. What is your view?


It is very difficult to take a call on that and we would like to be more neutral on that aspect. Our idea is to just look at companies which have existed for many years and have gone through this volatility. Fundamentally once things improve and businesses start doing well, then these events become just passing events.

Obviously. a big outcome negative or positive will have its own cycles in the market but that would give us an opportunity to either invest or exit depending on how things are panning out on the election side over next three to four months.

What is the one tactical equity strategy that you would adopt? Would you stick to largecaps, the quality names, the compounders of the past? Are you getting ready for a sector rotation?


India is more of a domestic driven economy and some of the factors like crude either benefits or are negative for India in that sense. Our job is to buy good businesses which are run by good quality promoters or the managements or the professional managements and they have seen these cycles of ups and downs in last 10-20-30 years. They know how to navigate those phases pretty well without hurting the businesses or the profitability of the business. It is better to stick to them because they are the compounders. They deliver shareholder wealth and that is where your portfolio construction should be.

How are you looking at the rural demand theme right now? Are you adjusting your portfolio to take advantage of that opportunity?


Rural is picking up nicely. However; the monsoon has not been great this year and so we will have to see how much that would impact demand but it is too early to say that. Also, the government spending is really helping rural demand pick up nicely. We are into stories which in some way or the other which have positive impact due to rural economy bouncing back and we are happy with that portfolio.

What about NBFCs? We have very contradictory views there. Most believe that there could be a lingering impact of this liquidity crisis but is it time to go for the blue chip NBFCs?


We always like to be in quality companies — be it private banks, NBFCs or the consumption theme. This is a great time to differentiate the men from the boys. Select NBFCs are in great shape. Obviously the cost of doing business has gone up but as the liquidity situation improves in the market, those guys will get more and more money in terms of liquidity, borrowings and they can chug along well past this phase.

Basically, NBFCs which have been able to manage the ALM mismatches and the asset quality well, will do very well after six months. Let us say tier-2, tier-3, tier-4 NBFCs will slow down because of their business model. The quality guys or the top guys will have a bigger benefit to play out. Some of the low-ticket consumer finance or home loans can be done by NBFCs.

Many of the private banks also have NBFCs to precisely do business more efficiently without high cost structures. This unfortunately does not allow banks to go all out in terms of penetration in the lower ticket size businesses. Some of the NBFCs which are leaders and are strongly backed by the parentage are here to stay and will do very well along with the other private sector banks.

How are you mapping the earnings picture to help justify valuations?


We start the year with 15 to 18% EPS growth projection and by the end of the year, we come down to 10-11% EPS growth. So it is always a hope trade and unfortunately it does not surpass our numbers. As of now, the earnings numbers are not as great as you would have expected especially after demonetisation and GST mobilisation or being in the base.

The December quarter should also be okay-ish depending on the sectors. However, with crude oil prices coming off and the rupee appreciating, some margins will come back to the companies. So, the December quarter should be better than the September quarter but given the valuations, we will have to wait for one or two quarters to see whether this macroeconomic stability is around and then the micro will start doing well again.

What is your financial year-end Nifty target? Could the market test and breach the psychological 10,000 mark? Do you have a range in mind on both the high and the lower end of the index?


Frankly, we do not have a number in mind. We do not look at markets in that way. We concentrate more on the businesses which will continue to deliver 15-20% growth rates, 15-18% ROEs. The Nifty number is just a number and that does not give us any realistic picture about what is happening in the economy or what is happening in the market in a big way.

It is very difficult to give you a number in that sense but some of the events which were negative like crude oil prices or rupee depreciation are now in our favour, Hopefully, if elections are in our favour, then we will be on a rising trajectory rather than the falling-off trajectory.





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