"I would believe that the downside risk from the current levels should be limited but the upside also does not seem to be very huge given the fact that on the ground activity in the economy still remains subdued," he told CNBC-TV18 in an interview.
Meanwhile, defensives continue to outperform, despite the fact that the valuation differential between defensives and the rest of the market has kept on increasing.
"Frankly, alpha generation at this point largely depends on the cash position one takes than what stock one is buying at this point of time," Sabharwal says.
Below is the edited transcript of his interwier with CNBC-TV18:
Q: What is the sense you are getting of the market it is a breather, you will brace yourself for more falls?
A: We had a significant sell-off which has been led largely by global events. I think that was the biggest risk for emerging markets that developed markets have been moving up and emerging markets are underperforming. So, a fall would always lead to a continued fall in emerging markets. That is something which we have seen today.
However, all said, specifically looking from the Indian context, the worst of the macros are behind us now. If one sees gold prices, they are down 25 percent from the beginning of this year. We have seen crude being subdued given Chinese concerns and lot of consumption concerns globally. Given the dynamics of the crude market combined with the fact that we have a moderate leadership in Iran now. We could see the geo-political risk reduce we should be positive. The monsoons have been normal and are continuing to be strong all over the country.
Taking all the macro aspects into account as well as what has happened in the recent past, I would believe that the downside risk from the current levels should be limited but the upside also does not seem to be very huge given the fact that on the ground activity in the economy still remains subdued. To that extent we could see the market bottom move up and then remain in a range till we get some more clarity on the direction in which the economy is going.
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Q: How does one generate alpha or returns when the market is moving in a trading range- which stocks would you bet on to generate that extra money?
A: The market becomes very tough in this kind of scenario because typically whatever is the logic and going by the logic whatever stocks get bought in terms of what might look cheap given the fact that maybe inflation is peaking out, maybe the growth recovery should happen going forward. But that really does not happen so, largely what we have seen is that defensives have continued to outperform despite the fact that the valuation differential between defensives and the rest of the market has kept on increasing.
At some point of time, it obviously does reverse but at what point of time it is very difficult (to say). Frankly, alpha generation at this point largely depends on the cash position one takes than what stock one is buying at this point of time.
Q: How have you tackled the rupee depreciation and its impact on your stock picking because of the higher value of dollars some products will get a natural protection from imports. Exporters should logically do well and those with dollar debt will look worse. How are your buys or sells influenced by this 10 percent depreciation?
A: Clearly the two sectors which benefit out of the rupee fall are technology and pharmaceuticals because most of the large pharma companies today get a majority of their earnings from exports.
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