India still among best-performing markets in world: Rajat Jain, Principal Mutual Fund

In an interview with ET Now, Rajat Jain, CIO, Principal Mutual Fund, talks about the market and his portfolio strategy. Excerpts:

What has been your portfolio strategy of late and at current levels? Are you a buyer or are you simply out of the game?

We actually as a strategy have little amount of cash in our portfolio. We have been somewhat defensive in terms of our portfolio positioning in the sense that we would have new risk of overweight pharma and consumers. But at these levels, we are adding more if you can call it for want of a word. So we are adding financials. We think financials have been quite cheap now, good bands are quoting sub book at these levels. So financials are a good place to be at this point of time.

Experts are of the view that we may not go down the 2008 way, but what are the chances that we may not also recover the way we recovered in 2009?

The biggest difference between 2008 and now is the liquidity issue. That time the issue was panic was caused by liquidity seriously, and this time if you look at the US and Europe, in the US the S&P downgrade, what it is worth, is more of a sentimental thing than anything beyond that at this point of time. The US ultimately can print and it is not going to default.

I think the bigger concern is Europe, but the issue is not liquidity for the time being. So will we have a kind of bounce back the way we had in 2009? Unlikely. The point is yes, GDP forecast has been downgraded, but the point is it is going to be a prolonged recovery as India is still among the best-performing markets in the world, best of economies in terms of growth rates and so on and so forth. So we will have a prolonged recovery, but certainly not a sharp bounce back the way we had in 2009.

What does it mean from a market standpoint because the market is clearly watching out for what the government is now going to do considering we are at the fag end of the monsoon session of the Parliament, whether or not, there is going to be any key policy measures which would be taken?

The government has been incrementally making incremental steps. There was the price hike on diesel to start with a month or so ago. There is the likely introduction of a land acquisition bill in the Parliament proposed this session which is going to solve some of the issues. There is talk going on in terms of raising bar tariffs to reduce subsidies there. So there is a lot of work that the government is talking about.

The bills are only agenda and hopefully they will be combined by. So the government is going its bit, they do rely there is slowdown in the economy and they do their bit to kind of work on this. So overall from the government side, they are making enough efforts in this direction.

What are you making of the moves that we are seeing in the auto basket besides the obvious OMCs which are holding up because of the crude price decline would you read too much into the kind of bounce that autos are showing because fundamentally on the ground nothing seems to have changed?

Autos were beaten down earlier purely on account of rising interest rates and petrol prices. So the car segment and the CVs, we saw weak volume numbers come from both CVs and for the car companies. So that kind of led to this fall. So with probably gaining some ground because were beaten down so badly, but on the ground yes early days yet interest rates are still high, petrol prices have not come down yet. So bit of kind of just catching up after they fallen so sharply.

Is it too early to buy IT stocks, they have corrected on an average by about 15% plus but large cap IT stocks are still expensive, TCS is trading at a PE multiple of 17 times, Infosys 14-15 times, HCL Technologies still about 13 times?

The markets are kind of extrapolating what is happening on the US and European markets and the sense is that as economy slows, probably IT spends take a knock. Markets is taking that extrapolation, but we have also seen that their margins are generally compressing in the past. So at some valuation they will be interesting, but we in our portfolio have neutral bit on IT stocks.

Indian market has two ends one end which is the FMCG/pharma and the consumption space which is trading at a multiyear high. The other end is infra, real estate and machinery stocks which are trading at a multiyear low, which part of Indian market to your mind will get re-rated or de-rated?

The thing which is already high as you pointed out FMCG and pharma potentially, well they can only at some point of time.

If the kind of growth expectations that the market builds in do not come through and gradually if you see work in cap expenditure come back, their work in construction space, if people make reasonable margins again, the capital good/construction companies can get re-rated, but the market will slightly take some time before it re-rates. It would not rate them in a hurry. If they see companies making margins funds again and see capex orders coming in, that will happen, but it will take some time.

Identify one large cap investment idea for our views where you are convinced that you want to be buyer?

Principal large cap funds really.

What about the redemption pressures there then?

There are not really. Once we have a totally diversified retail base, we really have not seen major redemptions at all.