Q: The manner in which we have seen the turmoil, the volatility that has happened due to more global reasons—how are you, at a macro level, reading these developments?
A: My sense is that we have to look at it from three different angles. Clearly, markets ultimately act to the fundamental performance of companies. Earnings growth of Indian companies is likely to show an uptrend in the coming years as India’s GDP growth. Most analysts expect that, whether at higher rates or low rates, this earnings growth will continue. The question is high rate or low rates?
There is some dependence that India has on global economy one is certain sectors like IT, pharma etc, are dependent on exports and some of the high profile companies in the markets. Secondly, Indian economy is dependent on overseas capital for growth. The last 1% or 2% of growth beyond 6% really comes from capital that comes in from overseas. Last but not the least, there is a sentiment which gets impacted if there is overseas news flows.
These are three angles my sense is that overseas news flow will remain mix for some time and our markets hence will remain in a consolidation band. We have been in that consolidation band of between 15,000 and 17,000 or 16,000 to 17,500 for some time now. I suspect that much of this year we will have to bear with a market, which is in a narrow band. We will have what is known as a time correction rather than a price correction in response to what is happening in the macro economy and macro global factors.
Q: In that sense, how would you tactically approach the markets? Would you wait by global dust to settle down or would you look at this as an attractive opportunity to enter into the markets?
A: My personal sense is that if one believes that the Indian growth story is intact—our growth cycle is actually up trending and we are moving towards that phase where capacity creation focus on infrastructure investing etc is going to be the talk of the day—I would use dips as opportunities to buy because I suspect that whenever sentiment is bad that is the best time to buy stocks.
As we started the discussion talking about beta, I would also say that some of the high beta names, if a sentiment on a bad day will show a higher correction and for good companies in that space I feel there would be buying opportunities.
Q: How are you seeing retail investors reacting at this point of time? I know that there have been more larger structural issues with the industry over the last 5-6 months which has lead to inflows going down but are you seeing a sense of fresh retail money coming in at all at this point of time or are investors sitting by?
A: It has been very interesting this time around that most investors actually tend to book profits if the indices go to higher levels and are entering the markets when markets fall. So we have this situation when on very bad days when market are falling investors coming in and some of these investors they book profits at higher levels. Compared to the volumes that we saw in 2007—markets volumes of investor coming into fund has not been as high—but trends really indicate, thanks to quality financial advice and thanks to a greater awareness among investors, many of them actually come in when markets fall.
Q: The fact that a mutual fund today is by far the cheapest financial product that you can buy when it comes to commission structures—is that something which is sinking in to investors mind at all or is that really not something, which is drawing people? Logically, you would have investors factoring the costing as well. It is not the Indian consumer is not mindful of the cost but is that sinking in? It is almost at about 7-8 months since we went out of that no entry load regime.
A: It is in the process of happening and it is happening now. Certainly, what has happened in the recent past has been very good for the investors. The product has become very cheap and investors can virtually buy mutual funds without any load or any charge and also ongoing transparency charges. The fact that mutual funds now have a 15 year, at least the private sector mutual fund has a 15 year track record of performance in India, which is available to study and securitize.
All these factors are helping investors to take firm decisions and come to mutual funds. As you know many financial services products in India are more pushed products than pulled products so mutual funds are often sold and not bought. Hence, the incentives that the distributors have to sell, mutual funds also play a role. But not withstanding that certainly investors are seeing benefits of investing in funds. Many of them have benefited from investing in funds and the word of mouth is spreading and the tribe of mutual fund investors is gradually increasing.
Q: Without getting into specific stocks a lot of investors who are calling in these days find that they are making a loss on their high beta plays that they have invested into perhaps 6-7 months back. What would you advice one to do because the global headwind seem to be getting a little more intense as compared to these particular spaces? Would you advice investor to sit and hold on to their investments and perhaps wait for these things to die down or do you think exiting at these points would be the best thing to do?
A: Assuming that investors have holding power when there is some noise and confusion fundamentals tenets play out. The fundamentals tenets of any market and the Indian market will remain that, if companies do well, over a period of time prices eventually will have to catch up and perform. Given the fact that India continuous to be a rapidly growing economy in the global context, I suspect that some of these noise and confusion that we have seen, can only cause temporary disruption to prices of strong and performing companies.
Hence, I would clearly say that if I believe in your stock pick and if you have done your homework right—hold on and once the noise clears, markets will resume their march.
Q: I was just going through some of the numbers which Crisil has put out in terms of the monthly the exposure of fund houses as a collective entity and it appears that banking was one sector on which most fund houses were fairly exposed to and have benefited from it. If you were to look at a few sectors which your fund managers at one point of time are looking at and I understand that your fund managers look at a more six month 1-2 year kind of a time frame, which are the sectors which still look good even on all this turmoil?
A: As you right said, various fund managers would have various points of view. But on a very holistic and macro basis, we have been positive on three themes. We have been positive on the India outsourcing story and the global theme because we feel that in a situation where many global companies are going through tough time, actually outsourcing will benefit and there IT companies and pharmaceutical companies with an orientation in that area will do well. We will be overweight these sectors.
We have been positive on the domestic consumption theme and particularly drive from that theme. Again, pharma companies, to some extent some FMCG companies but also automobile companies, particularly two-wheelers and driven demand, hence, commercial vehicles—we have been positive in that area. Also, banking has been a focus area for us.
We also feel that as the markets move to a situation where capacities get stretched, government financial have strengthened—we have seen what the 3G auction has done and so on and so forth—investment-oriented sectors will start to look up. Typically happens to the middle of a growth cycle that capacity creation, infrastructure building etc, investment confidence and business confidence together return. We will see some of that going forward. Infrastructure-oriented construction engineering companies—these areas we have taken a positive stance at the moment.
Q: What are your thoughts on telecom and real estate?
A: We have been traditionally cautious on real estate as a fund house. But on telecom, our view is that there is a great long-term future for this sector. However, in the immediate context, lot of the investment that is now going to go into the rollout of 3G services, the fact that there is a pricing competition. which has caused, bottom-line will erode—all these issues are real issues and they will remain issues for sometime. Our sense is that it might be just worthwhile waiting for the sector to bottom out before one takes a call on the sector.
Source: http://www.moneycontrol.com/news/mf-interview/indian-macros-strong-would-use-dips-to-buy-tata-mf_459441-1.html
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