Lotus India AMC is a Joint Venture between the Fullerton Fund Management Group (Fullerton) and Sabre Capital Worldwide (Sabre). Both Fullerton and Sabre have been recognised for their knowledge and expertise in emerging markets in Asia. Alexandra Fund Management (AFM) is the sponsor of Lotus India AMC. AFM is an affiliate of Fullerton. Both Fullerton and AFM are wholly owned by Temasek Holdings (Pte) Ltd., Singapore. Having received approval from SEBI to launch an AMC in July 2006, the company launched its first product – Lotus India Liquid Fund in November 2006. The fund manages over US$2bn of assets.
Pradeep Kumar, Fund Manager- Equity, Lotus India Mutual Fund has more than 10 years of experience. He is a CFA charter holder and has 8 years of experience in Fund management and equity research. He started his career with First Global as an analyst, he moved to Way2wealth Securities, as a Senior Analyst. He was the fund manager for 3 years with DBS Cholamandalam Asset Management Company Ltd. Prior to joining Lotus India Asset Management Company Private Ltd., he was Fund manager with ABN AMRO Asset Management India Ltd.
Speaking with Anil Mascarenhas and Yash Ved, Pradeep Kumar says, “There is a misconception that banking is a rate sensitive sector.”
With oil prices rising, what impact do you see?
The oil prices have been driven more by financial interests of various participants rather than demand–supply equations. I don’t think that the world has changed to such an extent that oil prices double in a short span of time. A lot of speculation is taking place. It would be foolhardy to hazard a guess on oil prices with expectations ranging from US$100 to US$200. We believe oil prices cannot last higher for long because ultimately demand-supply equations will prevail.
India sure faces a problem due to high oil prices. Being a net importer, country’s financials will deteriorate to that extent. The current account deficit is widening and the inflationary pressures are already here for all to see. If oil price goes to the feared levels of $200, it would obviously be negative for the Indian economy. At the same time you have to remember that with India expected to grow at 7-8%, it remains one of highest growing economies as compared to the world economy, which is growing at 2-3%. We can’t look at India as a three to six-month-old story. There are structural changes happening in India as a whole. There will be negative headwinds for some time and there will be phases when most sectors are firing on all cylinders. The economy has the potential to grow at the rate of 7-8% for a long time. Some serious reform measures will accelerate the growth further for the Indian economy.
Given the political situation, what kind of expectations do you have on the reforms’ front?
For the last 10 years, most political parties have indicated that reforms would be there. The speed of reforms may be faster or lower than expectation. So the bottom-line is that reforms are here to stay, pace may vary.
Which are the sectors you are bullish and bearish?
We are bullish on Banking & Finance, FMCG, Media and Telecom. We continue to remain bullish on sectors, which are domestic demand-driven. We are bearish on commodities and metals. On IT services, we are negative. There may be some spurts due to rupee depreciation. We think business strength counts more than mere currency fluctuations, which are still not clear.
Banking stocks have got pounded and you are still overweight on the sector?
There is a misconception that banking is a rate sensitive sector. We do not subscribe to this view. In the last fifteen years, the banking sector has grown in multiples of real GDP growth. This includes loan growth, deposit growth, bottom-line growth, net income growth and net interest income growth. The other misconception is banking sector will be affected as Net Interest Margins may take a hit. Here, one has to understand that banking is a pass through sector. If there is any increase in cost of funds, banks increase the lending rates. The valuations too are very attractive. PSU banks are available below book value. Private sector banks are available at less than two times price to book ratio. Sector’s ROE ranges from 14 to 22%. The stock price movement in recent times is a knee jerk reaction.
You have a banking fund too.
Recently, we have launched Lotus India Banking Fund. The investment objective of the Scheme is to generate long-term capital growth from a portfolio of equity and equity-related securities of companies engaged in the business of banking and financial services.
What kind of cash levels are you sitting on?
We don’t believe in holding cash. The cash levels maintained are more to handle redemptions if any and some small churns in the portfolio. We maintain cash level of 3-5%. We believe our investors have already made their asset allocation and taken a decision to invest the amount given to us in equities. We don’t have to take any asset allocation call. Our expertise is to invest in stocks which we expect to do well.
By when do you see inflation coming down?
Inflation is much higher as it is close to 11.5%. We believe inflation would remain in double digit for the next 3-4 months.
What are your expectations from the first quarter numbers?
I think quarterly numbers will be better than expectations. In the last two to three months, expectations have scaled down so corporate performance would be better than what people now expect.
What are the changing trends as far as investing in MF is concerned?
As an industry we are in better times. From what we speak to others in the industry too, redemptions have not been much this time round. In the last five to six years, investors have a lot of choices to invest across funds.
What is your advice for retail investors?
The volatility and uncertainty in the stock market is a part and parcel of the game. This painful situation is unlikely to remain for long. Retail investors should take advantage of the weakness and invest with a longer term view.
Speaking with Anil Mascarenhas and Yash Ved, Pradeep Kumar says, “There is a misconception that banking is a rate sensitive sector.”
With oil prices rising, what impact do you see?
The oil prices have been driven more by financial interests of various participants rather than demand–supply equations. I don’t think that the world has changed to such an extent that oil prices double in a short span of time. A lot of speculation is taking place. It would be foolhardy to hazard a guess on oil prices with expectations ranging from US$100 to US$200. We believe oil prices cannot last higher for long because ultimately demand-supply equations will prevail.
India sure faces a problem due to high oil prices. Being a net importer, country’s financials will deteriorate to that extent. The current account deficit is widening and the inflationary pressures are already here for all to see. If oil price goes to the feared levels of $200, it would obviously be negative for the Indian economy. At the same time you have to remember that with India expected to grow at 7-8%, it remains one of highest growing economies as compared to the world economy, which is growing at 2-3%. We can’t look at India as a three to six-month-old story. There are structural changes happening in India as a whole. There will be negative headwinds for some time and there will be phases when most sectors are firing on all cylinders. The economy has the potential to grow at the rate of 7-8% for a long time. Some serious reform measures will accelerate the growth further for the Indian economy.
Given the political situation, what kind of expectations do you have on the reforms’ front?
For the last 10 years, most political parties have indicated that reforms would be there. The speed of reforms may be faster or lower than expectation. So the bottom-line is that reforms are here to stay, pace may vary.
Which are the sectors you are bullish and bearish?
We are bullish on Banking & Finance, FMCG, Media and Telecom. We continue to remain bullish on sectors, which are domestic demand-driven. We are bearish on commodities and metals. On IT services, we are negative. There may be some spurts due to rupee depreciation. We think business strength counts more than mere currency fluctuations, which are still not clear.
Banking stocks have got pounded and you are still overweight on the sector?
There is a misconception that banking is a rate sensitive sector. We do not subscribe to this view. In the last fifteen years, the banking sector has grown in multiples of real GDP growth. This includes loan growth, deposit growth, bottom-line growth, net income growth and net interest income growth. The other misconception is banking sector will be affected as Net Interest Margins may take a hit. Here, one has to understand that banking is a pass through sector. If there is any increase in cost of funds, banks increase the lending rates. The valuations too are very attractive. PSU banks are available below book value. Private sector banks are available at less than two times price to book ratio. Sector’s ROE ranges from 14 to 22%. The stock price movement in recent times is a knee jerk reaction.
You have a banking fund too.
Recently, we have launched Lotus India Banking Fund. The investment objective of the Scheme is to generate long-term capital growth from a portfolio of equity and equity-related securities of companies engaged in the business of banking and financial services.
What kind of cash levels are you sitting on?
We don’t believe in holding cash. The cash levels maintained are more to handle redemptions if any and some small churns in the portfolio. We maintain cash level of 3-5%. We believe our investors have already made their asset allocation and taken a decision to invest the amount given to us in equities. We don’t have to take any asset allocation call. Our expertise is to invest in stocks which we expect to do well.
By when do you see inflation coming down?
Inflation is much higher as it is close to 11.5%. We believe inflation would remain in double digit for the next 3-4 months.
What are your expectations from the first quarter numbers?
I think quarterly numbers will be better than expectations. In the last two to three months, expectations have scaled down so corporate performance would be better than what people now expect.
What are the changing trends as far as investing in MF is concerned?
As an industry we are in better times. From what we speak to others in the industry too, redemptions have not been much this time round. In the last five to six years, investors have a lot of choices to invest across funds.
What is your advice for retail investors?
The volatility and uncertainty in the stock market is a part and parcel of the game. This painful situation is unlikely to remain for long. Retail investors should take advantage of the weakness and invest with a longer term view.
Source: indiainfoline.com
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