Seshadri Sen, Head of Research, Alchemy Capital Management said that he prefers cyclicals over defensives as Indian industrial and manufacturing companies are coming out of a multi-year rut. They are positive across this entire space, he said.
Sen has over 25 years of experience and some of his key assignments in the past included Macquarie Capital, SocGen, ICICI Prudential AMC and a previous stint with Alchemy.
In an interview with Moneycontrol's Kshitij Anand, Sen said that the rally in the capital goods and utilities is a function of an overall macro shift where manufacturing and capital spending is regaining importance as a growth driver after many years of consumption-led economic expansion.
Edited excerpts:-A) We remain constructive on the Indian market for 2021. The key factors driving the positive momentum remain intact i.e. the continued economic recovery as the second wave recedes and vaccinations accelerate, easy liquidity and low-interest rates - both globally and locally - and the consequent rebound in earnings for FY22.
Q) Any contra trade with respect to sectors which you think could play in the next 6-12 months?
A) We are positive on cyclicals over defensives, as we see Indian industrial and manufacturing companies coming out of a multi-year rut. We remain positive across this entire space.
Q) What are the key risks that the Indian market faces amid the Bull Run?
A) The key risk remains a third wave of the pandemic, which could further hamper the economic recovery.
We are also keeping an eye out on global liquidity flows: any major risk-off event could destabilise the market for a short period.Q) What is your take on RBI policy? How long can RBI keep interest rates low?
A) The RBI has reiterated its accommodative stance in the recent policy and expanded its bond-buying program. We believe RBI can keep interest rates benign for the next 3-4 quarters at least, until the economic recovery takes proper hold.
There will be some pressure from inflation, but that can be looked through in the short term.Q) What is powering the rally in capital goods, Utilities as well as oil & gas space? These 3 sectors were top sectoral gainers in May?
A) The rally in capital goods and utilities is a function of an overall macro shift where manufacturing and capital spending is regaining importance as a growth driver, after many years consumption-led economic expansion.Reforms in the utilities space is also playing a role. Oil & gas is being fuelled by a global commodities rally, including crude.
Q) What should be the strategy at a time when markets trading in unchartered territory? Should investors put lump sum or in parts?
A) Any lumpsum surpluses can be deployed within a short period. Timing the market is difficult and makes very little impact on returns over a 2-3 year period.
Q) Will crude above $70 or $80/bbl hurt the economy and markets? Which sectors are likely to get impacted the most?
A) India’s external balances are very stable and can absorb an oil price spike better than in the past: the relatively benign current account deficit, strong external capital flows, and disciplined pricing by oil companies will limit the damage to both inflation and the rupee.
There will be some impact on consumer company margins and overall affordability, but the post-pandemic demand recovery should make it easier to absorb.
Q) Do you see demand revival by Diwali?
A) There should be some demand recovery as the pent-up demand from the lockdown kicks in. However, we need to monitor the impact of the second wave on household finances and consumer sentiment – we will get clarity only in 1-2 months from now. The progress of vaccination is key, as is avoiding the third wave.
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