It is not going to be all smooth-sailing from here: Lalit Nambiar, UTI Mutual Fund

Talking to ET Now, Lalit Nambiar, Senior Vice President & Fund Manager - Equity, UTI Mutual Fund, says metals is coming out of a very bad phase to a not so bad phase and that is probably being seen in the stock prices and the multiples.

Edited excerpts:


The markets for the last two days at least have firmly been in the grip of the bulls. What is your short-term outlook for the markets? Do you think that there will be some more volatility and some profit booking given the way that we have run up?

With earnings not really showing through in the quarter, there is likely to be an undercurrent of nervousness. You will have a few days of up and a few days of down and that is the territory that we are in because we do not see any permanent or structural change in terms of data as far as the economy or even at the market place level and we are going into GST affected quarter going ahead. I presume there will be a little bit skittish as far as the markets are concerned and one should not really think that this is going to be smooth sailing from here.

Sun Pharma is going to come out with its numbers, Lupin has had a terrible set of numbers, what do you make of this entire pharma pack because clearly we are seeing and the kind of results that these pharma companies used to deliver earlier thanks to of course the US FDA regulatory woes, we are not seeing that any more. Do you think that now is the time when one must just refrain from pharma stocks or do you see some more value in them?

You need to put a little historical perspective on how profits were created in this space. It was a space wherein you had huge opportunity in terms of the pipeline. You had reasonably benign US administration as well as Indian government on pricing in domestic market. You had competition which was on the weaker side and even the buyers in the US for instance were reasonably spread out and scattered.

All of those forces whether because there was profit available for Indian pharma or because of their own structural factors they sort of looked the other way and that has in a sense all come together to attack the bottom lines of Indian pharma. So today you have much more scrutiny from the US FDA. You have the Indian government talking about drug pricing. You have consolidation among buyers in the US. You have increased competition in India. Basically it means it is a sort of a reset for the sector. I would presume that the pain probably has already been borne but the after effects would probably linger for some more time.

What is your views on metal? The top three gainers in the Nifty are also from the metal pack. Things have started to turn around ever since we have seen a surge in the commodity prices as well.

One tailwind is obviously the possibility that there are some early signs of pickup in growth in Europe maybe and across the globe. Expectations on growth are not as bad as they were let us say six months ago or a year ago, so that is the sort of tailwind one would put on these commodities. And even in India you have a situation where the protection levels are reasonably good and healthy which is prompting people to even look at capacity expansion.

If you put all that together, it is coming out of a very bad phase to a not so bad phase and that is probably what you are seeing in the stock prices and the multiples. The story would probably be a little bit more long drawn than markets would expect.

While we are seeing markets at record highs, the banking stocks are not making great shakes. Most of them are in the red. In the last three years, we did not see too many reforms when it came to dealing with the NPAs. You have seen a lot of movement actually take place since the start of this financial year primarily with the NPA ordinance. How are you now approaching the banking stocks and do we prefer the private sector banks against the PSU names, we are also seeing a slew of banks get ready for QIPs and capital raising?

The first thing is obviously on balance sheet basis. I would not like to slice it as private versus public banks. The retail banks probably are better placed and they do not have asset quality issues. But having said that, the corporate banks both private and mostly public sector, , probably have gone through their worst phase. Now when exactly the market is willing to recognise that the asset quality issues can be addressed by whatever initiatives the governments are taking, that is a tough call. But I think the government has adopted an incremental approach. It has tried a couple of experiments with Indradhanush one and two.

The recent initiatives which have been announced are where the RBI will take a greater role. It is going to be this incremental approach. I do not think the government wants to come in and infuse a lot of money at one shot. It is not a problem which is just going to disappear overnight because the market wants it to be that way. The government is going to be very sensible about it because it has its own political ambitions to keep in mind. This is a space where you need to be patient and you need to keep watching this space and probably some of this, selectively you can start looking at some of the corporate exposure banks because I think the worst at least seems to be over. But having said that, it could be patient man’s game.