How are investors like Pradip P Shah hedging their bets as rupee heads further south?

"In the last year or so public sector banks have done extremely well. But they may not continue like this. There will be a problem going forward if the economies move down," says Pradip P Shah, Owner, IndAsia Fund Advisors. Edited excerpts.

Let us talk about portfolio strategy. Do you think at this time of market volatility, it is better to cushion with exposure to classic defensives so pharma? What do you think would fit the bill and what would be the rationale?
As I see the currency heading further south in India against the dollar, we as individual investors can think of hedging our bets a little more with natural shields. So we opt for export and now pharma. Sun Pharma are exporters. They deal with good manufacturing practices. There are problems with the US, in particular, so they will have to get their act up. Pharma companies which have domestic as well as export markets can be good to invest in at a high price, of course.

We also have got technology companies. TCS results were very good and, though analysts are saying they did not meet expectations, but 18% year-on-year growth in rupee terms, as I saw in The Economic Times, is not at all a bad growth rate. In spite of the currency drop, we got a positive growth rate.

So, we have got a good sector in IT and of course the China plus one strategy is playing out very well in India. A lot of chemical companies, for instance, are export-oriented. They are supplying to the world from India and meeting domestic demands as well. They are pharma intermediates or chemical companies – manufacturing chemicals – and there are so many of them, viz. Vinati Organics and Jubilant Industries. They will do very well under China plus one strategy. India is a stock pickers market. We have over 5,270 listed stocks on the Bombay Stock Exchange. You can build winners from any sector effectively, where the company has chalked out a resilient strategy to address forthcoming problems.

So, you consider that defensive tilt looking at IT, pharmaceutical companies, which have decent domestic as well as global exposure? What about the outlook when it comes to the banking sector, given the fact that now we are seeing quite a bit of consolidation and market share? The balance sheets have by and large improved significantly, credit growth is picking up. Is this not an attractive space to be?
If you have noticed, in the last year or so public sector banks have done extremely well and those who caught that wave did very well. The government had the vision to recapitalise banks and allow the write-offs and give them time and the Reserve Bank of India supported it. Also, it put some conditions on certain banks to not increase the portfolio when they were under PCA and their quality of loans were going a little awry.

But banks may not continue like this. There will be a problem going forward if the economies move down. We saw the CRISIL report that showed more positives in credit rating changes than negatives. But that may not continue going forward, if the economy goes for a toss and with oil prices at $90-$95 a barrel, everyone is going to be affected.

Inflation is going to be very effective and I am just glad that the RBI has been sober in not going all out in the public with interest rates or currency movements. So measured movements by the regulators will help in controlling any possible panic in the market, but at the end of the day we will face consequences.

The retail lending sector, of course, has done very well for banks but will that continue if interest rates keep rising? From housing to new, aggressive fintech lenders which are lending to new-age companies, all will all have some problems or the other.