Excerpt of an interview with Anoop Bhaskar, CIO, UTI AMC. The entire transcript is available in the April 2008 issue of 'Wealth Insight'. To subscribe for this magazine, please click here.
How much of the India story has been weakened?
On a long term basis, the story is intact. In the near term, some sectors could get impacted.
Which would those sectors be?
The real estate sector would be one. If there has been discernible wealth destruction in the market, where will the funds flow come for buying real estate assets? Sectors where the FII presence is fairly large - brokerage, financial services, banks, capital goods and construction - could be impacted. Not because of poor performance but due to the high level of institutional ownership as a large part of the free float. If the foreigners want to exit India, these will be the stocks they will offload.
Which strengths of the India story continue to stay?
Domestic consumption led by FMCG and pharmaceuticals. Telecom would have been the third but the sector is mired in regulatory problems. If it was not affected by government regulations, it would be a strong domestic consumption story.
Key sectors you are bullish on?
All the unfashionable sectors of the last two years - FMCG, domestic pharmaceuticals, construction, automobiles, infotech and cash.
We believe it is a defensive (in a relative way). There will be lesser pain in IT as compared to, say, real estate. It is under owned, valuations are far cheaper.
Which pharma companies are you focusing on?
On those that have their business coming from the domestic market. The market in India is going to be strong enough to give growth to such companies. We will look at companies with limited international ambitions. Not at those which dissipate their energy by buying companies in the U.S. or Europe and then spend a large part of their capital base trying to build those businesses.
How will you describe your stock picking approach?
It's a combination of the top-down and bottom-up approach. At times, the top down approach works. For instance, construction as a sector call in calendar year 2004 and 2005, and sugar in 2003. However, for this approach, the starting point is always the company and its operating environment. If the positive drivers are broad enough to buoy the entire industry, then a top-down approach helps. One need not meet every company in the sector. Doing a reference and valuation check can work here.