Q&A: Nitin Rakesh, CMD, Motilal Oswal AMC

'Look for leaders in sector'

A few industries have not been very promising. Nitin Rakesh, CEO & managing director, Motilal Oswal Asset Management Company, tells Neha Pandey & Masoom Gupte, that investors should follow a stock-specific strategy. Excerpts:

What should be a retail investor’s strategy in the current market?
I don’t think it’s a runaway market, but a stock-specific one. Investors should buy on dips. Some industries have not been promising, and hence, the market is subdued.

For instance, the rise in the input cost for automobiles was unexpected, and so, the companies have reported less-than-expected profits due to dropping margins. On the other hand, banks have done extremely well. Despite the rise in interest rates, their net interest margins have gone up.

Going by the first quarter results, which sectors (besides banking) look promising?
The telecom sector has been in-line so far. This sector can be a value player, if you invest in the right company. The global commodity cycle have hit metal companies and pulled down their earnings. In the fast moving consumer goods (FMCG) space, we were looking at an aggregate growth of slightly lower than 20 per cent.

Should an investor take cues from quarterly results?
You have to primarily watch out for what is the trigger for a company or a sector. For example, the drop in car sales for automobiles is more of a concern than rising input cost. In the cement space, the issue is over capacity. But it is a region-wise change.

Look for companies that have bigger market share in a sector. Among two-wheelers, you either look at Hero Honda or Bajaj. In commercial vehicle segment, it is either Mahindra & Mahindra or Tata Motors.

What is your take on public sector divestment? Is it a good way to enter the market?
It all depends on the pricing. So far, the initial public offerings and the follow-on public offers have not been priced attractively. During the British privatisation in late 1980s, the government gave 25-30 per cent discount. Also, the number of shares per application should be limited.

What are your targets in short-term, medium-term and long-term?
I won’t be surprised if the market is at the current level by this year-end. In the past nine months, the market has been in the same range, but earnings have been rising. This is called time correction. Although it has been dull and range-bound, a lot is changing. So, where the markets saw 20+ price-to-earnings multiple earlier, it is now between 16 and 17+. If it stays at the same level by December, markets will be at 13 to 14+ multiple.

Where do you see the markets next year, same time?
The earnings are going to grow at 15 to 20 per cent annually, so the markets should also be 15 per cent higher a year later.

What are the top three sectoral bets right now, and which ones to avoid?
Banking, especially infrastructure, capital goods, capital equipment and select auto, essentially consumer auto. Avoid some of the large-cap FMCG companies as they are expensive. Also, avoid some of the large-cap oil and gas and metals, especially the globally linked ones.

For someone looking at investment, would you recommend lump sum or via systematic investment plan (SIP), especially for a first-time investor?
In any market, SIP is the best way to invest and this holds true for all types of investors.