'Wealth creation possible through careful stock picking even at current levels of the market'

Even if investors bought at the peak of the greatest bull run witnessed by India from 2003 to 2008, they multiplied wealth over the long term provided they bought quality stocks at appropriate values, Rajesh Iyer, CEO, DHFL Pramerica Mutual Fund, said in an interview with Moneycontrol. Taking that as reference he says there are quite a few stocks even today, even after Sensex touched record high, that can deliver stellar returns in the long term. Edited excerpts:

We hit a fresh record high this week on Sensex. Do you think it is the right time to buy after a steep correction in the last few months?

Yes, there are quite a few stocks available even today that have the potential to deliver stellar returns in the long run. If we look at historical data, we find that even if investors bought at the peak of the greatest bull run witnessed by the country from 2003 to 2008, they multiplied wealth over the long term provided they bought quality stocks at appropriate values.

For e.g. stocks like Nestle, Asian Paints have multiplied between 6 and 10 times from their value in January 2008. We do believe that significant wealth creation is possible through careful stock picking at current levels of the market.

What should be the criteria of selecting quality stocks at current levels?

Companies that are generally classified as quality stocks have a proven business track record with strong growth prospects and are run by competent management without taking high leverage on the balance sheet.

What is important to remember is that buying quality stocks is not enough, it has to be bought at reasonable valuations to create wealth.

What is your call on the rupee?

The current trends on global macros do indicate that there will be a pressure on the rupee along with other EM currencies in times to come. Though the quantum and pace of the movement will entirely depend on the factors like FPI view on EM assets, oil prices, the impact of a trade war and RBIs stance on the currency.

FIIs turned net sellers in the last three months. What is causing the nervousness among foreign investors?

There is a growing anxiety amongst international investors, induced by high oil prices, trade war and strengthening of the dollar. Under such an environment FIIs exit EMs and money move to safe heavens like dollar assets.

So FII exits from India is a part of an overall trend and not specific to India. Flows should reverse as oil and currencies stabilise.

Sensex & Nifty have recouped losses seen in 2018 and are trading near record highs. But, the pain in the broader market continues. How long will the pain last?

The smallcap and midcaps stocks have substantially run up over the last couple of years. The valuations in the segment were far ahead of the earnings growth. With the onset of volatility, stock valuations have corrected.

But, it would not be appropriate to say that the broader market is in a bear run. Current volatility has been induced by pressure on the macros while the micros are improving.

There are signs of revival in various parts of the economy which should augur well for earnings growth of well-run companies and hence the broader markets.

What would you advise investors who are holding smallcap and midcap stocks in their portfolio — buy on dips, hold or sellout on rallies?

A generic advice will not be in the interest of the investors. Whether the investor should buy, sell or hold entirely depends on the quality of the companies that constitute the portfolio.

If the investor believes that the underlying business is a quality business that will grow strongly and is available at reasonable valuations then it makes sense to buy on dips.

On the other hand if there are issues of corporate governance, deteriorating fundamentals etc. the selling on rallies would be a preferred choice. So it all depends on what you hold in the portfolio.

What will drive Indian markets in the next six months of 2018?

It will be a tug of war between worsening macros and improving micros. The course of the market will be determined by a combination of external factors like oil prices, the intensity of trade war, rate hikes in developed economies and internal factors like fiscal situation, earnings growth, investor expectations around the outcome of general elections in 2019.

Will RBI raise interest rates again in 2018?

We believe that there will be at least one rate hike in CY 2018. Further hikes by RBI will be data-driven and linked to oil prices, fiscal deficit situation, trends in current account and inflation along with global factors.

Your comments on the recent MSP rate hike. Do you think it will impact the country's fiscal math?

This is the first double-digit hike in MSP by the government after single-digit hikes for last few years. Our calculation suggests that the fiscal impact is unlikely to be significant though it will depend on procurement policies.

Any particular sector which is likely to benefit the most from the MSP?

If higher MSPs does translate into higher income for the rural economy the sector like Microfinance, Farm equipment, Agrochem, Logistics and companies in consumption, manufacturing small ticket items will be the bigger beneficiaries.

How is June quarter earnings likely to pan out for India Inc. Do you think the NPA stress in the space has bottomed out?