S. Naren, one of the country's biggest fund managers and also ICICI Prudential Asset Management Company’s CIO, has expressed interest in the pharmaceutical sector, saying it offered a rare opportunity as it was at the bottom of the cycle, as weak companies are closing in the US. Generics have not performed well overall, and some global players are trading at significantly low price-to-earnings ratios, indicating potential growth opportunities for the long term, he stated.

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Naren also said Indian IT service companies have faced uncertainty with regard to the impact of emerging technologies such as ChatGPT on their business.

In an exclusive conversation with CNBC-TV18, Naren said: At the bottom of the cycle, you have companies going bankrupt in US. At this point of time, you see some companies doing very badly in US and you see a fair amount of pricing pressure... In fact, some of the pure global generic players in US are all trading at even below 5 PE now. So that is an indicator that some of those stocks are towards the bottom of the cycle.”

Naren also said he has been recommending categories like savings balanced advantage, equity and debt, balance and multi asset, along with flexicap funds for investments. This is because, he believes, the next 3-5 years will see a fair amount of volatility.

India has the best structural story with strong macros

Further, Naren said India has the best structural story with strong macros and extremely supportive dynamics. He attributed the recent market surge to the significant printing of money by the Bank of Japan. He noted that global central banks have selectively injected substantial funds into the market, which has had an impact on various sectors.

When asked about sectors that offer comfortable valuations, Naren picked financials and power. He, however, advised caution while investing in financials, saying it is a leveraged sector.

As for the power sector, Naren said it is a long-cycle industry as demand is likely to remain robust for the coming 3-5 years.

S Naren oversees assets under management of Rs 5,58,000 crores as on 31 May, 2023. In dollar terms, it is approximately $70 billion.

Here are the 18 key takeaways from one of India’s biggest fund managers:

1. India is the best structural story with strong macros — the challenge is to decide what kind of premium to pay.

2. Big move since March on strong flows partly explained by Japanese central bank printing a lot of money.

3. We are in a lower or moderate return environment, no longer in a zero rate regime.

4. You can invest in debt and get 4-5 percent, even Japan will quit printing at some point.

5. Since March, it appears that markets are going up in a straight line, but it won't remain like this.

6. We will move into a moderate return environment.

7. The next 3-5 years we will see a fair amount of volatility — better to have products which can switch between equity and debt.

8. Top end of premium consumption is in great shape. The challenge is valuations — how to buy it. Even if we don't buy now, we won't sell either.

9. We try and buy companies/sectors at the bottom of the cycle, but right now, almost nothing is at the bottom of the cycle.

10. Autos and new-age cos were underperformers last year, even these have picked up.

11. Some underperformance in IT and pharma. Would buy pharma, which is a rare sector at the bottom of the cycle.

12. Not clear about impact of the likes of ChatGPT on Indian IT services companies.

13. Consensus across foreign analysts is that India is best structural story.

14. Analysts have moved away from valuing companies based on earnings to valuing them on EV (enterprise value) or EBITDA basis.

15. Top Indian banks' lending safe, valuations very comfortable.

16. It’s easier to stay invested in top banks. Areas like microfinance, vehicle finance are doing well but requires much more research.

17. The power sector has reasonable valuations, a long cycle industry. Power demand has been very robust over 3-5 years.

18. We own many new-age companies. Naren said, while I have assigned these companies to my younger more growth-oriented colleagues, one must stay balanced. Cannot say yes to everything.

(Edited by : Shoma Bhattacharjee)

First Published:Jun 2, 2023 7:17 PM IST