Mumbai: Tata Mutual Fund is overweight on industrial capital goods firms in India on hopes a reviving economy will boost order books in the current quarter and the next, lifting corporate earnings, a fund manager said.
M. Venugopal, head of equity, said he also favoured consumer goods and software exporters but was wary of real estate firms as asset prices remain unaffordable for a major chunk of population.
The fund manager has dumped almost his entire stake in the real estate sector in 2009 and invested nearly a third of its Tata Pure Equity Fund’s assets in capital goods, technology and consumer sector shares at the end of October.
ITC, Bharat Heavy Electricals and Crompton Greaves were among the fund’s top-10 holdings.
“We are set for some bit of ordering activity, which should pick up now,” Venugopal told Reuters in an interview.
“Once you see that happening, you will see some upgrades in the infrastructure space,” the fund manager, who manages more than Rs60 billion ($1.3 billion) for the firm, said.
He said a pick up in industrial output was not a result of firms restocking inventory but a revival in economic activity. This should lead to a stronger corporate earnings growth in the third and fourth quarter of financial year ending March.
The fund manager is expecting at least a 5% corporate earnings growth in fiscal 2009/10 and up to 15% the next year, as the economy bounces back and investments pick up pace.
India’s industrial output grew a faster-than-expected 9.1% in September from a year earlier and the finance minister has said the economy could expand 6-7% in FY10.
“There is a little bit of confidence which is lacking even now but going forward that will get corrected and private capex will also pick-up,” said Venugopal, who holds Texmaco and engineering and construction firm Larsen & Toubro.
The fund manager, who also holds stakes in Nestle and Hindustan Unilever, said rising income levels and faster economic growth would raise consumption, making it one of the strongest investment themes.
“India is on the threshold of very strong growth in terms of consumption,” he said.
Venugopal said he was also overweight software exporters as the overall global economic environment was picking up.
“This is one sector where we think upgrades are very much possible,” he said.
“We think next year should be a much better year for at least the frontline IT companies,” Venugopal, whose portfolios holds shares such as Infosys Technologies, Wipro and Patni Computer Systems, said.
The Mumbai-based executive said real estate was one sector he was avoiding as such firms faced pressure on their profit margins and asset prices had not corrected enough to revive demand.
“Companies have got stuck with land banks at higher prices and now there is a mismatch between affordable price level and the price at which they bought,” he said. “It’s not going to be a very easy time for these companies,” he added.