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Santosh Kumar Singh, Fund Manager, Motilal Oswal AMC, says “we are not really concerned about exposures of mid and small caps, but I am really concerned about certain areas of the market where corrections can be sharp and that has gone up in the last three-four months. Those are the areas I am really worried about, because there are no fundamentals and the valuations have gone up so sharply.”

It seems you are a lot tilted towards auto components, electric manufacturing as well as industrial manufacturing. Which are the names, if at all, in terms of the manufacturing theme? Also, what do you think about the manufacturing theme going forward because the risk-reward is not as lucrative as it was 12 months ago?
Santosh Kumar Singh: Yes, I would agree that yes, it is manufacturing as a theme. The government is working hard and they want it to work. But the valuations and the way they have gone up, it is no longer as lucrative as it was in the past. But in my portfolio, on the manufacturing side, I am more bullish on auto components, which are a significant portion of my portfolio. I have been quite bullish on autonomous vehicles in the next 5 to 10 years. I am more bullish on technology in vehicles. And that is why you will find companies like SAMIL in the portfolio,

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I am quite bullish on that space. But specifically, if you are talking about PLI linked manufacturing, I find the space to be still. The companies might do well, but the valuations are so high that I find it a little bit difficult to get into that space.

This is a problem across the broader markets right now. Nonetheless, I see that you are quite positive on IT or technology as a space. Are you not worried about the underperformance that might continue for another 6 to 12 months?
Santosh Kumar Singh: Actually, the stocks for the last three-four months are doing better than what I thought because the index is doing better. This is the reason for that call in the portfolio. I simply believe that we might see a decline in the global interest rates and that is going to be quite positive for the IT sector. It is a micro-linked sector as a whole from that point of view. And the valuations of the market itself are not giving me a lot of comfort to get into too many cyclicals. So I am trying to avoid that part of the market, which is too cyclical given the valuations and the way it has run out.

How are you managing not to get into cyclicals and also being in exchanges because there are quite a few names within your smallcap portfolio at least. There is MCX, there is BSE as well. What is your view on exchanges and platforms as a whole because right now BSE is coming under pressure because NSE has cut transaction charges and the Street is worried that BSE will follow suit. But fundamentally, what is the thesis on some of these exchange names?
Santosh Kumar Singh: We are quite bullish on capital markets. Volumes in the Indian market are growing at a phenomenal pace. Compared to five or 10 years back, when FII used to drive the volumes in the market, currently the volumes are driven more by retail and trading volumes are mainly on the option side. If I compare these two, it seems to me that the capital market space is quite lucrative.

That is why we have some positions there because we still think that the space is not that expensive, because the stocks are not that expensive and at the same point in time, if the volumes keep on increasing, and it is not dependent on the market up move or down move. If you are on the option side and that also in the shorter duration, that is where the volume is. The upside or the downside of the market does not impact you that much.Okay, interesting take. So, capital markets is the theme that you like and of course, these transient issues keep on happening. But overall, you have a lot of exposure to smallcap and midcaps. There was that notice from AMFI and worry from SEBI regarding smallcaps. It was a large part to do with SMEs, but nonetheless there were worries about small and midcaps as well. Are you finding it difficult to deploy funds and looking at moderating inflows into your AMC?
Santosh Kumar Singh: Absolutely. Firstly, midcap is a large space. When anyone or even SEBI would have talked about it, it would have been more about the areas where there are issues. But if you are looking at the growth in the market, it is mainly in midcap. Mid and small caps are where there is growth in the market. Largecap is restricted to 100 stocks and then the majority of the growth is in midcaps and small caps. My personal view is that any correction in high-quality stocks, because there are certain areas of the market I am quite concerned about, clearly because there are certain areas of the market where the valuations have gone high and these areas are mainly in the mid and small caps. That is why you can say that mid and smallcaps might not do that well, because they have done really well, because certain sections of the market have done really well, but they might not do well.

What we are more bullish on are areas where we see good growth and the valuations have not gone up that sharp. We are not really concerned about exposures of mid and small caps, but I am really concerned about certain areas of the market where corrections can be sharp and that has gone up in the last three-four months. Those are the areas I am really worried about, because there are no fundamentals and the valuations have gone up so sharply.

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