Expect market to consolidate around current levels over next 2-3 months: Mahesh Patil, Birla Sunlife MF

In an interview with ET Now, Mahesh Patil, Co-Chief Investment Officer, Birla Sunlife Mutual Fund, shares his views on the credit policy, rate cut, markets and a few sectors. Excerpts:

ET Now: From a money manager's point of view, would you call RBI monetary policy hawkish, dovish or a balanced one?

Mahesh Patil: In terms of the announcement, it was pretty much in line with market expectations. The cut in interest rates would probably take some more time to come in. So on that basis compared to the earlier policy, it was slightly hawkish.

But, as we observe inflation trends, they are showing signs of cooling off. Even global commodity prices have weakened. So, inflation trajectory should be moving down. The only event is the hike in interest rate by the US and post that one would see the RBI taking any form of action on interest rates.

ET Now: How prolonged could this pause be from RBI on the rate front? In the worst case scenario, could it go beyond the second half of next calendar?

Mahesh Patil: It can happen because inflation is in line with the RBI glide path. I do not see any risk on that side. Given that, one would not expect that any cut in policy rates would extend to such a large extent.

ET Now: How much time correction do you see in the Indian market to be happening or carrying out in the short to medium term?

Mahesh Patil: After a sharp run in the market, valuations are now slightly above the long-term average. During times of inflection, in terms of the economy normally the market tends to move ahead of fundamentals. Given that, the valuations are slightly on the higher side. It could consolidate over the next two to three months.

More importantly, on the global front things are turning a bit negative. On domestic side, you would see the supply of paper in terms of PSU disinvestment in the next two-three months and some of the corporates will try to raise money. That would also really cap the upside. So, in the next two-three months the market should consolidate around these levels.

ET Now: How would you prepare for a possible rate hike in the United States and would you rate cash levels for that?

Mahesh Patil: Whenever such events happen, the market reaction comes out pretty fast and furious. But, if you step back and observe, for example, whenever we have seen hike in interest rates in the US, it signals the fact that the economy is coming back to normalcy. Equity markets tend to do better with the hike in interest rates.

So, one would not be too worried on that count. There might be short-term volatility, but one would not want to time that and or raise cash. From a portfolio perspective, one would tend to be a bit balanced. Recently, high beta stocks and companies with high leverage have seen a significant under performance. Focus on quality would be a better strategy rather than raising cash at this juncture.

ET Now: What are your sectoral over-weights and under-weights in this market right now?

Mahesh Patil: We continue to be slightly biased towards domestic cyclical, but within that we would still prefer some of the consumer discretionary stocks like autos. Here, the dealer check suggests that the festive season should be pretty good.

Besides that, we also continue to like the defensive sector. Some of the large IT stocks are still available at reasonable valuations and the commentary from some of the companies, at least from the US, suggests that the deal pipeline is looking good. We have seen the rupee weakening a bit in the recent past. It should also help.

So, IT looks pretty steady even from a short to medium-term perspective. Apart from that, in the banking sector we continue to prefer private sector banks, especially the retail-focused banks.

If you look at retail loan growth, it is slightly better than the overall banking growth rate. So those are the stocks, especially on the banking side, where one should expect them to be steady performer in the medium and long term.

ET Now: With earnings just round the corner, what kind of earnings season do you expect and which ones do you think would really stand out in the second quarter compared to the Q1?

Mahesh Patil: We saw a mixed bag numbers in the first quarter. We have seen the domestic economy-related stocks did not do that well. The similar trend might continue because we have not seen any meaningful signs of change at least at the ground level.

On the autos one could see some positive surprise. The IT sector will continue to do well and again, as I mentioned earlier, the rupee depreciation should help. Apart from these, commodities can be a bit volatile. We had seen some rise in commodity prices initially, but we have seen that correcting more recently again. How it will pan out in terms of quarterly numbers is very difficult to guess at this point in time.


Economics Times
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