We expect FMCG valuation premiums to sustain if growth continues.Rahul SinghHd-Equity Research StanChart SecRahul Singh of Standard Chartered Securities expects beaten down sectors to rebound due to the liquidity support provided by the central bankers.
Monetary and liquidity conditions have eased so far in 2012-13 after the Reserve Bank of India slashed policy rates by 50 basis points and cash reserve ratio or the portion of total deposits banks need to keep with the regulator, by 125 bps. Moreover, the frequent open market operations wherein RBI bought back bonds also injected liquidity into the system.
Meanwhile, the dollar rallied and financial markets retraced following the European Central Bank meeting in which Mario Draghi failed to live up to his strong "whatever it takes" statement the previous week. Much of the rally which this comment had triggered was given back, and while the markets may have been left underwhelmed, he did open the door to a new round of policy action.
According to Singh, the commodity rally will be negative for inflation over the medium-term. In this backdrop, he finds FMCG companies still attractive due to high growth and dividends. "We expect FMCG valuation premiums to sustain if growth continues," he told CNBC-TV18 in an interview.
Singh says most earnings downgrade for FY13 have been factored in and he prefers consumer staples over discretionary at this point. "There may not be any major downside in consumption due to weak rains," he says.
His top picks include HUL and Marico among consumer plays.
Here is the edited transcript of the interview on CNBC-TV18.
Q: What is the general sense of the market from hereon?
A: As you were mentioning a while back, I think it is about short-term versus medium term. It is not going to be good in the long term if the liquidity led rally in commodities finally starts biting in terms of inflation and fiscal deficit. But, in the short-term it could lead to some pick up especially, in the sectors which have been beaten down where the worst has been in the price.
However, we still don't know how to put a timing to it in terms of when to buy some of these names. You could get some kind of a flurry of activity in those names which were always looking good on valuation, but we were never sure when to pull the trigger. I would look at this as a short term driven liquidity rally, mostly in the high beta names.
In the long-term there are issues which will cap the valuations to some extent for the overall market and we will keep coming back to the better quality names in each of these sectors.
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