Inflation to weigh on equity markets

Thematic funds have not out-performed the equity diversified mutual funds most of the times. ‘When thematic funds perform they beat the equity diversified funds by a big margin’, says CIO, Sundaram Mutual Fund, Satish Ramanathan in conversation with Ritu Kant Ojha. ‘Invest with a clear long term perspective and be aware of the risks caused by rising crude prices’ he says. Excerpts:

With the announcement of rate hike by RBI what impact do you see on the equity market?

While the market was expecting about 25 bps increase, RBI did 50 bps hike. Inflation is one major risk factor for the market. In order to pre-empt the expected increase in administered fuel and electricity prices, RBI has taken this step. India suffers from imported inflation and that is feeding into core inflation. RBI is also vocal in sacrificing some growth to control inflation. We also hope inflation is quickly brought under control. As of now, it is not affecting the realisable long term growth. But in the short term, it would weigh on the market heavily.

Equity markets in India have been mostly volatile since last 18 months. What strategy should medium to long term investors must adopt in such a market?

The investors should come with the clear long term perspective in mind and also should be aware of the risks caused by the crude going up.

Sundaram has several thematic funds in its portfolio. How have thematic funds performed vis-a-vis equity diversified funds? Both in industry as well as Sundaram mutual?

We have several thematic fund offerings. Thematic funds play a unique role in the sense when the themes perform they beat the diversified equity by a big margin. For example, in the calendar year 2010, the NIFTY returned about 18 per cent return whereas our Financial Services fund returned about 35 per cent return. Similarly the Rural fund also gave about 20.80 per cent return during that period. So the key point to note when the themes do well, they outperform the market.

What are the sectors you are bullish on in the near term (12 months)?

We like defensive sectors like consumer, telecom, pharma and also have cautious positive view on financials and information technology and we are negative on rate sensitive sectors like real estate, etc

You have recently launched Sundaram equity plus fund. Given the current market sentiments in equities and high gold prices, how do you justify the theme and timing of the NFO launch ?

It is the product that combines two powerful global asset classes (Indian equitites and gold) in a tax efficient way. We note that investors are already investing 15 per cent of their physical savings in gold in the last 10 years or so and this product offers a convenient way of buying gold.

Do you think gold ETFs will find space with Indian gold investors who traditionally choose to invest in the physical gold?

Gold Exchange Traded Funds are evolving and would be better way of investing in gold rather than the physical form. It scores over physical gold in several ways.

What are cost an investor has to pay to invest in this New Fund Offer

The units are issued at par. There is no cost to the investor.

Source: http://www.indianexpress.com/news/inflation-to-weigh-on-equity-markets/787647/0