Higher valuations, GST causing nervousness in market: Amit Nigam, Peerless MF

Talking to ET Now, Amit Nigam, Head-Equity, Peerless MF, says larger part of our economy is services which is actually going to see a lot of complications going ahead.

Edited excerpts:


What according to you has caused the nervousness in the market? Would it be something as near term as maybe just the June expiry or the RBI diktat on banks or would you say it is more to do with GST uncertainty and how it is all going to play out?

You have more-or-less spelt out most of the reasons which we could think of and if I could just add one more -- the discomfort of higher valuations probably is what is causing this nervousness.

Had the valuations been say at minus one standard deviation compared to plus one standard deviation, today given our 10-year average, the nervousness could have been far lesser but the nervousness is being manifested because we have so many uncertainties and primarily it is happening because of the GST.

We are seeing a lot of apprehension amongst the industries, the trade where they do not know as to how thing are going to pan out post 1st July. And something far more important is how is the services sector going to be impacted because we all discuss a lot of the product side and the impact of GST but what we do not discuss so much is that the larger part of our economy is services which is actually going to see a lot of complications going ahead.

Contrary to popular belief, SBI chief Arundhati Bhattacharya says that the recent RBI diktat is not going to deal a significant blow to banks as such. What do you think?

NPAs have been a large problem for quite some time. If we don’t solve the NPA problem today, the problem will keep on becoming bigger and bigger as the time passed because the interest component of that loan just keeps getting added to the principle amount.

NPA problem is still not behind us. Some of the banks may have enough capital to provide for the losses occurring due to these NPAs but I cannot say the same for all the banks. There are certain set of banks which are not as deeply capitalised to take the full brunt so it is a cause of concern and therefore when we select banks for our portfolios we pay a lot of attention to such details.

Again talking about GST, you have been one of the market participants who firmly believe in the structural shift from unorganised to organised. Which sectors do you think are going to be able to capture that shift in the most profitable manner?

We will see that happen and we will see it across businesses, leave out certain sectors where the organised part is very large, If I can just give you an example today, auto OEM, for example. The car manufacturers are 100% organised. There you would not see any shift but when we are looking at auto ancillary companies especially the ones which are supplying to the spare market, they are the ones which are going to feel this pain and that is the space where the organised sector is going to gain market share.

Now the good thing here is that the disruption which will happen will be at its peak starting on 1st of July. So the companies which are prepared to handle GST, have already ensured that their ecosystem including their distributors and retailers are on board, will be the ones to take off immediately, gain as much market share as possible and then try and build upon it because in any business the key to profitability over the longer term also emanates from how much market share that player is enjoying in the market.

How are you positioning your portfolio right now in Peerless? Are you upping your cash levels right now, are there any new additions that you have made in your declared portfolio?

The way we manage our portfolio is that it is a completely bottom-up stock selection process. We never take cash calls. We generally maintain about 4-5% cash and the reason for that is simple that if any of our portfolio holdings is down significantly for any reason and we still believe in that business model and we think that the price correction is an opportunity to add we use the cash for the same.

Otherwise, the way we have constructed our portfolio very carefully owning in terms of profitability both historical and also the outlook for the next few years. Management integrity and capability are two other very important facets we focus on while selecting companies and after having done that we have a portfolio of about 32-35 stocks on an average in our different schemes.

That is how we select and at this current juncture we are not significantly changing our cash positions we are maintaining that at about 4-5% and any such corrections, for example, that we have seen over the last 15 odd days where mid-caps have actually corrected far more than the headline Nifty or the Sensex, we use that cash adequately to increase our investments.