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It doesn’t pay to blindly follow consumption theme: Lalit Nambiar, UTI Mutual Fund

One has to look at nature of order book and return ratios of companies rather than blindly follow the consumption theme, says Lalit Nambiar, Senior Vice President and Head of Research, UTI Mutual Fund. He spoke to ETNow.

Edited excerpts:
With the kind of cues we are dealing with globally and locally, there are elections just a couple of months away, there is US-China trade talk which has been going on for very long and just about today they concluded just a few minutes ago. Otherwise, there is also uncertainty regarding what the Fed stance will be, what will be their policy for the year? Amid all these uncertainties, how are you navigating the markets?

Well, the philosophies of the fund continue to dictate our methods of investing, our processes tell us what stocks bottom up look good. And we continue by that. I mean a lot of this is actually noise because these things have happened before and you have seen them from a longer term perspective. They really do not make so much of a difference while obviously elections make a difference.

The US-China thing is quite critical, but in the final analysis, it is probably important to focus on the fundamentals of the stocks rather than get so much caught up in all this noise.

In a year like this and especially with regard to the fact that elections are coming up, what are the kinds of sectors you could be betting on? Is it primarily earnings driven or is it going to be the ones which could benefit from incentives and initiatives undertaken by the government?

To some extent, in the short term, the government incentives make a difference to earnings, but the bigger and a longer term picture is determined by the competitiveness of the company and factors which are intrinsic to the company. If you look at the trends today which we are facing, there is some amount of populism in the run-up to the election. We are seeing global worry factors.

But clearly, what seems to be holding off is the investment cycle, at least in our country because people want to be more certain about their prospects once they put up capacity. And to that extent, if we were expecting an investment revival, that may have got slowed down a bit and pushed back a bit.

But that still does not mean it is not going to happen post elections because once you have a new government in place, whatever its colour, the policies are not very different from one another as we have seen through our history. And to that extent, I think when we see investments coming back in whether it is through the private sector or the government continuing with its investments, that is likely to be positive for sectors such as construction, infra and capital goods.

Perhaps there is much more opportunity there bottom up than in other places because we have already consumption going through a long positive run. In that sense, I think this positive surprise can be expected more from the non-consumption space.

You also seem to be preferring construction sector as one of your key bets. Just want to understand while in the last many months and the last one year or so, we have seen a fantastic pick-up come in the infrastructure and construction space. But right ahead of elections, it is more consumer centric, more people centric sort of incentives doled out by the government. The focus is more on the consumption space. What is it that you are seeing the construction space, what are the levers in place that are compelling you to bet big on it?

It is a matter of also the price and the valuation and the opportunities. In the consumption space, clearly there was a lot of growth and growth opportunity which is possibly now fading a little bit and you have issues around rural India to some extent.

While the government policy may help, it is sort of making a very bad situation normal. It is not that we are going from normal to great. As far as investment is concerned, it is basically a place where the government has always focussed and we are now waiting for the private sector to step in and perhaps the private sector is holding back because of the elections.

If you look at the growth for the next year or so and the order book of these companies, they are well placed. I am not saying per se specifically construction, I am just saying some of those opportunities which are linked to the investment cycle need to be looked at. It could be specific companies, you will have to look at what is the nature of their order book, the nature of their return ratios and then look at them rather than blindly follow the consumption theme.

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