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Fund managers at crossroads on metals' outlook

Last Updated: Thu, Dec 01, 2011 19:31 hrs

Confirming a slowdown, India’s economic growth rate slipped to 6.9 per cent in the second quarter, the lowest in nine quarters, prompting the government to lower its full-year growth projection to 7.3 per cent. Economic growth during July-September fells mainly due to poor manufacturing performance and decline in mining output.

The next big news to have affected equities was the government’s approval to 51 per cent foreign direct investment (FDI) in multi-brand retail and 100 per cent FDI in single-brand retail. This triggered a face-off between the government and the Opposition. The latter is adamant that the government scrap the decision.

Uncertainties and unrest in the international and domestic arena affected sectoral indices in the past week. While the metals and capital goods sectors witnessed selling, retail moved based, on news flow. This week, we are going to look at what the fund managers have to say about the sectors and how they are positioning themselves in these sectors.

For the week, Rikesh Parikh’s net worth stands at Rs 980,000, down 1.98 per cent; Mehraboon Irani’s net worth is valued at Rs 885,000, down 11.54 per cent; Ashish Mittal’s net worth is at Rs 958,000, down 4.23 per cent; Alex Mathews’ net worth is at Rs 993,000, down 0.72 per cent; and Ajay Parmar’s net worth totals Rs 992,000, down 0.82 per cent.

Vice-president, equity strategies, Motilal Oswal Securities
“Among the metals stocks, a rebound is already visible in Sterlite Industries. We expect a double rebound on receiving confirmation of stability on the global front,” said Parikh, adding he was positive on Hindalco Industries and Sterlite Industries.

During the week, Parikh exited BHEL. He said, “We have downgraded BHEL, as margins are expected to come down due to increasing competition.” From the capital goods space, Parikh is positive on Larsen & Toubro.

VP Equity Strategies, 

Motilal Oswal Securities
Top Holdings Cost 
price (Rs)
price (Rs)
(Rs lakh)
Jaiprakash Associates 70.90 64.95 0.39
Mcleod Russel India 256.14 227.15 0.34
Coal India 339.94 330.50 0.33
Deepak Fert. & Petrochem Corp 166.16 148.10 0.30
State Bank of India 1783.97 1824.15 0.27
Total investments     2.77
Cash      7.03
Net worth     9.80

Principal & head - private client group, Nirmal Bang Securities Pvt Ltd
“Till we don’t have sanity prevailing (among politicians) on the FDI (in retail), taking a call on retail stocks will be foolish. Also, besides a couple of listed companies, not many are expected to benefit due to the FDI in retail,” Irani said.

“As regards capital goods and metal stocks, they are directly related to the economy, which is experiencing a slowdown. So, no surprise that they are the most ignored stocks. However, with the market in an oversold condition, I expect these stocks (especially the metal pack) to have a good bounce.”

Principal & Head – 
Private Client Group (PCG), Nirmal Bang Securities
Top Holdings Cost 
price (Rs)
price (Rs)
(Rs  lakh)
Idea Cellular 93.57 92.30 0.92
Bharti Airtel 382.52 379.10 0.85
Ranbaxy Laboratories 462.76 443.15 0.75
Delta Corp 97.91 71.00 0.67
Godrej Industries 201.82 192.35 0.58
Total investments     7.76
Cash      1.08
Net worth     8.85

Fund manager - PMS, Centrum Wealth
“We had maintained a negative view on the metals sector for some time, but after the severe fall in stock prices and easing of money supply, we have cautiously turned positive on select stocks like Hindustan Zinc,” Mittal said.

Mittal believes this could be an appropriate time to cherry-pick stocks from the capital goods space, with healthy order book, valuation comfort and strong corporate governance.

“The development in the retail sector would bring structural changes in the economy, as we expect new investments through this channel would lead to healthy job creation in the system. We believe this is a positive development for the retail sector, particularly for Pantaloon Retail, and is a huge positive for the stock market,” he said.

ASHISH MITTAL, Fund Manager - PMS, Centrum Wealth
Top Holdings Cost 
price (Rs)
price (Rs)
(Rs lakh)
MRF 6816.10 7057.20 0.71
Balmer Lawrie & Company 618.48 537.65 0.70
Karur Vysya Bank 372.59 391.25 0.67
Bharat Electronics 1582.70 1487.25 0.59
ITC 199.36 203.65 0.56
Total investments     8.54
Cash      1.04
Net worth     9.58

Head, technical and derivatives research, Geojit BNP Paribas Financial Services Ltd

During the week, Mathews remained on the sideline. As of this week, his top holdings are Tata Coffee, Larsen & Toubro, Ranbaxy Laboratories and Bajaj Financial Services.

Head-Technical and Derivatives Research, Geojit BNP Paribas Financial Services
Top Holdings Cost 
price (Rs)
price (Rs)
(Rs lakh)
Tata Coffee 897.89 823.75 0.21
Larsen & Toubro 1385.51 1294.60 0.13
Ranbaxy Laboratories 510.17 443.15 0.11
Bajaj Financial Services 571.78 435.75 0.11
Total investments     0.56
Cash      9.37
Net worth     9.93

head - institutional research, Emkay Global
“Metal may look compelling, but according to me, it’s more of a trading bet,” Parmar said.

In the capital goods space, he is positive on Larsen & Toubro. Parmar said he was keeping away from retail stocks as of now. However, he said, “As soon as the opposition dies down and uncertainty goes away, I’ll put my money in these stocks.”

AJAY PARMAR, Head, Institutional Research, Emkay Global
Top Holdings Cost 
price (Rs)
price (Rs)
(Rs lakh)
IVRCL 34.14 36.35 0.29
Suzlon Energy 23.61 23.45 0.28
Tata Motors 179.05 183.00 0.27
Hindustan Construction Co. 23.01 22.05 0.26
Gitanjali Gems 341.75 337.00 0.25
Total investments     2.86
Cash      7.06
Net worth     9.92

For more details on Smart Portfolios, please visit www.smartinvestor.in/sp  

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