‘Value can be found outside the index' : PRATEEK AGARWAL, HEAD-EQUITY, BHARTI AXA INVESTMENT MANAGERS

If the volatility in the market reduces, we expect to see the space outside the index perform significantly better than the indices themselves.

When markets remain range-bound, stock-picking increasingly becomes a challenge. While few sectors continue to outperform market, investors tend to move with majority and pick stocks within such sectors. In an interview with Business Line Mr Prateek Agarwal, Head-Equity, Bharti AXA Investment Managers, identifies sectors that hold potential to outperform and also sectors that lack sheen.

Healthcare and FMCG stocks outperformed the markets in the recent times. Do you anticipate the trend to continue?

In general, the healthcare and FMCG space is expensive but there can be exceptions in the mid-cap space. On account of high volatility in the market, premium was being paid for cash generating stable businesses and this benefited these sectors. As focus turns to growth, we expect this space to underperform. The pharma space also benefited on account of M&As which have taken place at valuations that are not otherwise justifiable. Hence, we believe that the chances of disappointment are high in this space.

Despite the rate hike concern, auto retail sales continue to be robust. What is your outlook for the sector?

We continue to be positive on the space. While interest rates have a bearing on the total cost of ownership, for most buyers, fuel may be a larger cost. While both of these costs may go up over the medium term, we expect sales to remain buoyant because the income levels are growing at rates faster than the increase in cost of ownership of a vehicle. One sense of increase in incomes is the growth in the nominal GDP which is running in excess of 15 per cent.

Given that mid and small-cap stocks are more sensitive to interest rates do you anticipate any slowdown in earnings due to increase in interest rate?

While mid and small cap stocks have a larger leverage than large cap stocks, and hence, may be affected more due to an increase in interest rates, they would also benefit on operating leverage. Spare capacities would be put to use as the economic growth strengthens. Hence, the mid-cap part of the market may actually deliver earnings growth in excess of the large-cap part of the market.

Residential property demand is still below the peak levels even as interest rate concerns loom large. Do you think the current valuation of the sector holds potential to deliver market return over one-two years?

We are positive on the real estate sector outlook. We are already witnessing buoyancy in absorption rates across the country and prices have moved up significantly from the bottom and volumes are sustaining at higher price levels also. While housing market has recovered, the commercial space is yet to fully recover and may take time.

However, with economic growth expected in excess of eight per cent, it is only a matter of time before the commercial space sees demand. We believe that the stocks in this space offer significant value.

After being hit by competition and regulations, telecom stocks are slowly back in action. Do you anticipate a bounce back in the sector?

The focus on the telecom sector was on account of M&A activity. While such news flow would continue to make the stocks volatile and may present trading opportunities, we believe that the competitive intensity would remain high. Hence, we believe that it may underperform the market in the near term.

Market has been range bound over the past six months, do you believe the current valuation will see fresh investment?

We believe that the valuations are now at the top end of the comfort zone, and hence, we do not expect a very significant move in the index and expect the index performance to trail the earnings growth trajectory. However, while the index is not cheap, value can be found outside of the index. If the volatility in the market reduces, we expect to see the space outside the index perform significantly better than the indices themselves.

Source: http://www.thehindubusinessline.com/iw/2010/07/25/stories/2010072550711000.htm

'Opportunities aplenty, but dig deep for value' : Arindam Ghosh, CEO, Mirae Asset

Financial services shares are likely to outperform in the near-to-medium term, feels Arindam Ghosh, CEO Mirae Asset. In a chat with ET, Mr Ghosh Financial services shares are likely to outperform in the near-to-medium term, feels Arindam Ghosh, CEO Mirae Asset. In a chat with ET, Mr Ghosh says that the risk-reward premium has narrowed down considerably, and that investors will have to hunt deeper to spot values. Excerpts:

The market has been grappling with the volatility arising from the debt crisis in Europe. The recent upswing apart, where do you see the market headed?

The Indian economy is chugging along well, with GDP growing at about 8% plus. The recent trend in monsoon, too, is satisfactory, although the overall picture would be clearer after a few weeks. The results from Q1 earnings are reasonably impressive so far and we are on track for a 17-18% growth year-on-year this quarter, which is actually one of the leanest quarters of the year.

It is a well-recognised fact that today, India offers a unique combination of strong demographics, rising incomes, low consumption and favourable government policies, factors that allow India to be among the preferred economies in terms of the potential to deliver high return on equity (RoE) to investors. Given these aspects, we remain positive on the market and are confident that the market will continue its upward stride albeit for a few hiccups resulting from any adverse news on the global front.

What would be your investment approach in the current market?

The risk-reward premium has narrowed compared with the past year’s lows, as the market has moved to the reasonably-priced zone. Concerns relating to the possibility of a double-dip recession in the developed world and hard-landing due to inflation may persist for some time. Having said that, there are many investment opportunities to hunt deep to spot values.

We continue to remain positive on the financial sector, which has the largest component of the index at about 25%. Financials, in our opinion, will be among the leading sectors for the market. Besides, we are positive on large-cap IT firms and, on a selective basis, on stocks in pharma and consumer segments.

Why are retail investors shying away from mutual funds? Do you feel it largely has to do with distribution issues, following the removal of entry load?

While the industry has faced challenges in the recent past, we believe that the changes will eventually benefit all stakeholders in the long term. Also, it won’t be prudent to assign reasons for relatively low inflows entirely to this factor since other headwinds — market levels, global news and sovereign debt concerns — have also played a part.

An important factor is that a sizeable number of investors have been waiting for a correction to invest, given the swift uptrend in the market recently. Amid all this, one should not forget that mutual fund as a product is the most cost-competitive, transparent and affordable tool for retail participation in equities in the Indian market. We are confident that in the long term, the inherent advantages of this product would ensure that retail investors in large numbers recognise this aspect and join the mutual fund bandwagon.

Where would you advise retail investors to invest — equity, debt or SIPs?

Investors need to have confidence in India’s growth prospects and thereby invest in equities since this asset class offers the best returns in the long term. For retail investors, we would advise them to invest in equities through the SIP mode, since this is an affordable and time-tested strategy. Also, investors need to judiciously plan their asset allocation to ensure that they have a well-diversified portfolio.

Source: http://economictimes.indiatimes.com/Opinion/Interviews/Opportunities-aplenty-but-dig-deep-for-value/articleshow/6216810.cms?curpg=1

Mahindra Finance expects to enter mutual fund biz by Mar 2011

Mahindra Finance, the financial services arm of auto major Mahindra and Mahindra, today said it expects regulatory approval for entering into the asset management business during the fiscal.

"We have applied for asset management company and we hope to get SEBI (Securities and Exchange Board of India) approval during the year," Mahindra Finance Managing Director Ramesh Iyer told PTI.

Following the approval, the company would launch mutual fund schemes, he said.

The company is planning to go on its own, he said, adding that for setting up the business, the company will hire specialised people with domain knowledge.

Currently, there are 39 mutual fund players in the country with total average assets under management of more than Rs 6.75 lakh crore at the end of June.

The total average assets under management of the 39 fund houses in the country plunged by Rs 1.27 lakh crore, or 16 per cent, in June.

Mahindra Finance, a non-banking finance company, is into vehicle finance, insurance brokerage, rural housing finance and refinance of old vehicles.

At present, the company has a network of 487 offices spread across the country, which will touch 500 by the end of September this year, Iyer said.

Meanwhile, Mahindra Finance recorded 85 per cent jump in net profit for the first quarter ended June 30 to Rs 80 crore compared to Rs 43.13 crore in the same quarter a year ago.

The company also reported a growth of 23.51 per cent in income from operations during the first quarter to Rs 404.46 crore, as against Rs 327.48 crore in the year-ago period.

The company's gross disbursement registered a growth of 76 per cent to Rs 2,854 crore at the end of June 30, compared to Rs 1,617 crore in the same period of the previous year.

The company maintained its quality of assets through continued focus on NPA reduction, coupled with buoyant rural cash flow, Iyer said.

Source: http://economictimes.indiatimes.com/news/news-by-industry/banking/finance/finance/Mahindra-Finance-expects-to-enter-mutual-fund-biz-by-Mar-2011/articleshow/6216024.cms