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Enam's Sivaram says market rally due to liquidity gush; housing fin space may be in a bubble

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Indian market is on the cusp of breaking its record milestones. Sharing his outlook with CNBC-TV18, Sridhar Sivaram, Investment Director, Enam Holdings said the rally is due to the gush of liquidity. The market did not seem to be in a bubble, he said.

“This is a part of a global rally…emerging markets are at a 3-year high, US markets are up,” Sivaram said in an interview.

So, where does an opportunity lie for an investor in such times?  Sridhar said one could look at leveraged companies with a reasonable business model. Transmission of interest rates have been undertaken, which is reflected in about 100 basis points cut in not so well-rated companies as well, he noted.

Additionally, there are huge deposits floating in the market. All of these, are giving opportunities in terms of earnings growth and we are looking at that chance, Sridhar said. Total debt in the corporate world is Rs 40 lakh crore and one percent reduction in the rate could mean a big impact on the financials.

It would also be good to look at banks, Sridhar said. He is optimistic on the bankruptcy process and by March, he said, we will know if banks have provided enough or not. This makes it easier for the government as well to decide on how much capital is needed.

Pharmaceutical space, he felt has become stock specific. The business model has changed and patent issues are playing out now. There are changes in the US distribution setup as well, he told the channel. So, it is very difficult to take a call on the overall sector, he added.

Among non-banking financial companies (NBFCs), Sridhar said housing finance is a worrisome segment and is in a bubble. “Most of the companies have 50-55 percent of the book as mortgage. Large part is builder and corporate finance. Even then, with this high risk profile, they are trading at higher valuations,” he added.

Within NBFCs too, microfinance institutions is another space to be seen with caution, he said. Credit rating agencies have pointed out red flags for the sector, which also sees risks due to political intervention in terms of a loan waiver. This is subprime and non-collateralised lending, which is a worry.

Stating his views on multiple insurance IPOs hitting the primary market, he said investors must look at the 61-month persistency ratio as they tend to make money only after five years. In fact, from that point, they earn till the tenth year. Currently, we are at a persistency ratio of 50 percent, which is very low, he added.

For the uninitiated, this ratio helps in understanding whether investors look to hold on to their policies with the said insurer. It will help investors in understanding the customer base and the track record of the company.