Indian market not sneezing at every global event any more; 5 sectors to bet on now: Shiv Chanani

Shiv Chanani, Senior Fund Manager, Baroda BNP Paribas Mutual Fund, says aggregate valuations have decreased since peaking in September, with domestic plays favoured over global ones due to higher global uncertainty. Consumption is expected to benefit from lower taxation and positive monsoon forecasts. Pharma and healthcare sectors are showing strength, while capital goods and power utilities require a bottom-up investment approach.

It feels as if the Indian market has made peace with the global uncertainties and one thing is for sure that the Indian market has its own style of trading and investing and showing levels no matter what the global setup is like. It seems that the Indian market has decided not to cough every time the US sneezes and not bend at every stick of the crude. What is your take on the texture of the domestic markets at present?
Shiv Chanani: You summarised pretty well the way the Indian market has been behaving and it is a great sign of how the market is behaving in a far more mature manner as compared to what we have seen earlier. It is a combination of a few things. If you think about the texture of the market now compared to 5 or 10 years ago, clearly there is a far higher salience of the domestic players. I am not just talking about the institutional players here, I am talking more about a set of other domestic players as well and to that extent, we have seen far lower volatility compared to what we have seen 5 to 10 years ago.

That is certainly a very good sign from a market point of view and market participants as well like you said we are not coughing and sneezing at every event that takes place globally. So, clearly, it is a very good sign for the Indian market and certainly for Indian investors.

Indeed, it is a good time for the investors, but where should they look at because the valuations have been a bit of a concern given the up move from the March and April lows. Where are you finding value at this point in time? Is there any pocket which seems to be fairly valued at this moment?
Shiv Chanani: When you think about it from an aggregate valuation perspective, we have pretty much been flat for the last nine months. We peaked out somewhere in September last year and since then we have been sort of moving in a fairly range bound kind of a market and, of course, there have been accretion to earnings in the same period of time.

So, clearly the aggregate valuations have come off compared to what they were nine months ago. And when we talk about the pockets that we like, clearly at this point of time, we like more domestic plays compared to the global plays. Certainly given the fact that there is a far higher uncertainty from a global perspective and on a relative basis, the domestic plays look a little better placed, particularly if you think about consumption as a basket.

There is an expectation that the impact of lower taxation should start to flow into discretionary consumption as well as when you look at the monsoons, we will know the final picture maybe two months later, but at least at this point of time, it looks to be positive from a monsoon point of view as well and which should bode well again for the rural consumption part of it.

The other theme that we continue to like is pharma and healthcare where we believe both the international as well as the domestic part on the formulation side as well as healthcare as an industry, seems to be going from strength to strength. Clearly those are the pockets we are positive on. Other than that, in capital goods, power utilities, we have a little more bottom-up approach at this point of time because we believe these are nuanced sectors. So. one needs to pick and choose there.

The short-term volatility ought to persist. But India's medium-term growth remains intact and while the market participants also understand this, they are trying to create and draw a portfolio. What is the equity investment philosophy of your fund house and how should one consider drawing their portfolio?
Shiv Chanani: When an investor is looking to create their own portfolio, the most important thing that they should take into account is what is their investment objective and what is their investment horizon and the third part which is what is their risk appetite. So, the portfolio has to be constructed in accordance with these two or three variables.

If there is a young person less than 30-years-old, they should have a longer time horizon which means they should have a higher component of small and midcaps given that the risk appetite is likely to be higher, whereas if somebody has got certain objectives in terms of the milestones coming from two- to three-year perspective, the portfolio has to be constructed accordingly.

So, what is most important is the time horizon and the risk appetite of the investor.