We continue to like the consumption theme: Anand Shah

Interview with Chief investment officer, BNP Paribas Mutual Fund

With global liquidity on the rise due to measures by the US Federal Reserve and European Central bank, investors are beginning to favour riskier stocks. Anand Shah, chief investment officer of BNP Paribas Mutual Fund, tells Puneet Wadhwa he is bullish on the cement sector and select stocks from the auto and banking packs. Edited excerpts:

Besides positive global cues, key reforms/policy actions are driving the recent rally. Are we being over-optimistic?
We do not believe markets are being more optimistic. But they are definitely less pessimistic. At the beginning of 2012, expectations were quite low and nobody believed that Indian equity markets could deliver positive returns.

Over the first seven months of 2012, the news flow further deteriorated with GDP (gross domestic product) numbers continuing to remain sluggish and macroeconomic indicators projecting a very weak growth. Policy making had further slowed down and policy uncertainty further increased (post the coal crisis). On the back of very low expectations, these very minimal reforms/policy actions helped the market sentiments and provided the much-needed boost.

Has the investment strategy changed from ‘sell on rise’ to a ‘buy on dips’? Has the government averted the ratings downgrade?
We believe what has come through as policy reforms/policy actions so far has to be followed up with further measures to revive the infrastructure sector, investments and GDP growth. Until then, we are recommending investors to use the systematic investment plan (SIP) route to invest in equity funds.

Should investors have a debt strategy as well?
For debt schemes, with an expectation of interest rate cuts, we believe investors should invest in corporate bond funds having a maturity of around two-three years.

Are you still betting on the consumption theme, even though high inflation and the rupee might dent the spending and consumption patterns? What about sectors like telecom, cement, infrastructure and capital goods?
We continue to like the consumption theme. Though this sector has massively outperformed the market over the last three-four years, even from here, due to sustained earnings growth, a select few companies in the consumption theme can continue to deliver good returns to investors over the next three-four years as well. The earnings of these companies are helped by a growing middle class in India, its rising per capita income and pricing power.

The telecom sector will be a key beneficiary of consolidation in the industry and rising tariffs. We continue to like the cement sector as it benefits from a rising housing demand in India. For sectors like infrastructure and capital goods, we continue to remain cautious due to high leverage and over capacity.

Is the time now right to look at stocks from auto and banking sectors, given the outlook for the economy and interest rates?
We like a select few companies in both the auto and the banking space and agree that in a falling interest rate environment they will be the key beneficiaries.

With the Rajiv Gandhi Equity Savings Scheme including exchange-traded funds and mutual funds, do you see this generating enough enthusiasm among investors?
We believe that actions/policy changes directed at increasing the reach and penetration of mutual funds among retail investors are positive and welcome. Since these changes have just been announced, we will wait to see the impact of these in enthusing retail investors to participate in mutual funds.