We have moderate return expectations from market this year: Rahul Singh, Tata Mutual Fund

The multiples are partly factoring in earnings recovery in FY20. We are also seeing some recovery in FY19. The earnings cut have not been as deep as they were over the last three to five years, Rahul Singh, CIO, Tata Mutual Fund, tells ET Now.

Edited excerpts:

Would you be buying autos in this decline? There is data which indicates that auto sales have slowed down but stocks have also come down?

They are in a neutral zone. The correction s sustaining and the stocks are sustaining at the lower levels after a correction which we saw in the last quarter of 2018. We do not see any reason to kind of change our stance one way or the other because we take a company by company approach.


If you look at the largest car manufacturer, it has its own sets of issues in terms of no new major platforms being launched. There is also fatigue there in terms of market excitement. The CY cycle and the tractor cycle are in the second and third year of their upcycles and we are seeing some signs of tapering.

As a sector, we are looking at it not as a uniform or homogeneous sector. We take a company by company approach and from a valuation perspective, some of them have become reasonably attractive but still not something which we would worry or get too excited about at this point of time.

Do you think markets are fully priced or are you able to spot a lot of opportunity in this kind of an environment?

Obviously, there is not a lot of opportunity in this kind of market but if you look at the valuations today, they are partly factoring in a good earnings recovery for the market as a whole. In a way, the multiples which we see today are partly factoring in that earnings recovery in FY20. We are also seeing some recovery in FY19. The earnings cut have not been so deep as they were earlier over the last three to five years.

On the whole, the return expectations from the market are pretty moderate this year and within that, volatility could be a function of what we see globally, what we see starting in India with the budget going on till elections.

It could be a tale of two halves. The first half could be quite volatile and the second half is when we would get probably most of the returns which we are expecting for the year. That is how we see the markets. Beyond that, it is anybody’s guess as to what will happen over the next one or two months.

Where are you finding value in this market?

The segment that I am going to mention, I cannot say the market does not like this segment. It is something for you to make out but corporate banks definitely is a segment. We are looking more and more sure of a recovery there and it is not only the bad assets recovery or the credit cost coming down. We are also seeing that at the top line level.

When we look at the pricing power or the market share in credit growth combined, we are looking at a good net interest income growth for some of these companies. We are going to have a combination of a strong NII growth and reduction in the credit cost which sets the stage for a very exciting 2019 for not only the corporate lenders, but also other banks which did not have the issue of stressed assets. These banks could also re-rate from here because of the way the market has changed and the way the pricing power has moved to these banks in terms of their ability to not only sustain the yields and spreads but also increase it over a period of time.

We are seeing signs of that in the banks in the sector – both smaller and bigger banks. That is a segment which is already over-owned and the market is still not getting as excited because everybody owns chunks of it. However, it is a big segment which can absorb a lot of flows and we can see at every stage, every quarter, every passing day, evidence of what I am talking about, that the valuation keeps on re-rating and that is the segment which is going to give sustained returns this year.

In terms of positioning yourself ahead of risk, what kind of cash levels are you keeping right now across fund categories?

Different funds are at different stages of deployment. We have also had a few launches recently so there obviously the cash levels are high but there’s nothing out of turn here at this point of time. We are having other launches now and we are taking our time with those funds. But in the existing funds, there’s nothing out of the ordinary.