'H1CY12 favourable to pick quality stocks for long-term'

Market participants would rather leave behind the ghost of the past, especially the massacre of 2011, and welcome 2012 with new hopes and aspirations. While investors still stay wary of equity markets, mutual funds are gearing for a fresh start. Like they say, after all, experience does make you wiser!

Moneycontrol.com along with rating agency, Crisil embarks on a journey to uncover MF Superstars across various categories this New Year. Starting the year with focus on largecap funds, Moneycontrol.com spoke with the management of Fidelity India Growth Fund, a nominee to the MF Superstar.

Ashu Suyash, managing director and country head of Fidelity Worldwide Investment highlights the strategies of the open-ended equity fund that has a portfolio of over 50 blue chip stocks.

She says that the market volatility that one sees today should be seen as a time of opportunity rather than a time to stay away from markets or to redeem mutual funds.

According to Suyash, the key performance drivers for 2012 could be a steady improvement in infrastructure spending, progress on goods and services tax (GST), range-bound crude oil prices, and reasonable capital flows.

Below are the questions and answers of the interview. Wait for the video!

Q: Is this a good time to invest lump sum in equity schemes given the sharp correction in share prices over the past few months?

A: We believe in a long-term and disciplined approach to investing. The last few months have witnessed significant volatility over lingering concerns over rising fiscal deficits in the euro zone and the ability of the governments to deal with these. Indian equities too have seen a notable decline due to global headwinds and domestic factors such as sustained inflationary pressures and higher interest rates as well as slowdown in the reforms process. In such scenario, market volatility should be seen as a time of opportunity rather than a time to stay away from markets or to redeem mutual funds. History has shown that panic selling can crystallise losses, which are exacerbated when subsequent rebounds in the market are missed. This is because during volatile periods, markets can swing in both directions; remaining calm and taking a long term view is the key. This can be best achieved through regular investing, or the systematic investment plans, wherein monthly investment amount tends to be low. Longer term investors pay an average price for units over time and this helps beat volatility.

Q: What do you see as the key concerns for the stock market over the next 4-6 months?

A: Growth expectations for India have declined in tandem with the fall in industrial production, high funding costs, and slowing global economic growth.  Nonetheless, a slower growth rate in India will still be considerably in excess of growth achieved in the developed world.  We are hopeful that the policy environment will improve in light of the marked deterioration in the growth outlook, as that has historically acted as catalyst for the government to push through tough reform measures. Meanwhile, inflationary pressures have eased due to the higher base effect and a decline in food prices, although core inflation will continue to present a challenge and any renewed currency depreciation could offset softer commodity prices. This should be followed by monetary policy easing which could be supportive for equities. Amongst key performance drivers that we would look out for in 2012 could be a steady improvement in infrastructure spending, progress on goods and services tax (GST), range-bound crude oil prices, and reasonable capital flows. India's economy is domestic growth oriented which is likely to limit the impact of a slowdown in western economies.

Furthermore, to some extent the policy challenges, high inflation and global risk are already priced into the market. In general corporate balance sheets are healthy and quite a few top quality companies are currently trading at attractive valuations. Many companies are entering 2012 in much better shape than they did the financial crisis of 2008. As always, when economic conditions get tough, strong companies get stronger and our investment team remains focused, despite the macro uncertainty, on picking individually attractive companies from a long term perspective. We are finding some attractive valuations which give us an opportunity to buy long term growth businesses at cheap levels.

Notwithstanding the disappointment on the growth front, over time we expect India to continue to liberalise, offering a longer term supportive environment for the next round of economic expansion. Against this backdrop, the first half of 2012 is expected to present an opportunity to build positions in top quality companies that have a long-term competitive edge, whilst prudently managing portfolio risk. Recent hiccups notwithstanding, long term growth drivers remain intact. Favourable demographics, increasing urbanisation, low household debt and robust growth in domestic consumption are all ongoing favourable trends which increasingly the market has chosen to ignore - thereby offering opportunity.

Q: Will your bottom-up approach to stock picking work in the current scenario where certain sectors themselves are under pressure?

A: The premise of bottom up approach to stock picking is based on focusing on a company's fundamentals, its execution strategy, competitive advantage and quality of management team among others. This approach is the best way to identify a potential stock irrespective of market volatility and whether the sector is beaten down. A strong company will perform well even when conditions get tough. This disciplined approach has helped us both during good and bad times.

Q: Would you suggest that people stay minimum cash as your fund suggests or should investors wait a bit longer to get into equities?

A: As said earlier, investors should adopt a disciplined approach wherein based on their investment goals and risk appetite, amounts can be set aside every month than trying to time the market. Since our equity funds are 'equity' funds and form part of the 'equity' asset allocation from an investor point of view we do not encourage that our Portfolio Managers make big cash calls.

Q: How long do you think before the corporate investment cycle starts picking up?

A: The sovereign debt crisis in Europe has been a dent on business confidence. Added to this, domestic factors such as slowdown in domestic demand, high material prices which hurt margins, lack of policy reforms and volatility in financial markets have hurt the corporate investment cycle. Notwithstanding the unfavorable policy environment, declining inflationary risks coupled with lower interest rates could bode well for business sentiment and a revival in capex cycle.

Source: http://www.moneycontrol.com/news/mf-interview/39h1fy12-favourable-to-pick-quality-stocks-for-long-term39_653263.html

Expect 20% returns from equities in 2012 - Aviral Gupta, equities fund manager, Indiabulls Mutual Fund

Indian stocks could return about 20% in 2012 on the back of lower interest rates, improved reforms and cheap valuations, said Aviral Gupta, equities fund manager at Indiabulls Mutual Fund.

"There's negligible shock-value in the system now. We expect things to improve on both global and domestic fronts going ahead,"" Mr Gupta said.

Mr Gupta expects a slew of policy reforms post the Assembly elections. He expects the government to increase allocation to infrastructure sector and continue with its rural development programme, despite the huge fiscal deficit.

"Government will restart reforms post-election. We expect several infrastructure projects to be commissioned post March this year. The government will continue with its rural development programmes like NREGA... This will support the rural consumption story in a big way," Mr Gupta said.

Mr Gupta does not expect too much of negative news-flows from Europe and US. "Eurozone negative shock-value has come down significantly from last year... Data from US is largely positive. Their big worries - housing and unemployment - seem to be bottoming out already," Mr Gupta said.

Rate cuts and lower inflation numbers will drive up Indian shares in the coming months, Mr Gupta said. Falling commodity prices coupled with low interest rates and increasing demand will help Indian companies to improve their earnings, Mr Gupta said.

Mr Gupta is also comfortable with current stock valuations. The Sensex is currently trading at 11 - 12 times forward earnings multiple - much lower than historical average of 15 - 16 times forward earnings.

According to him, barring telecom and power, which will continue to face strong headwinds, investors can buy frontline companies in any sector. Mr Gupta is bullish on IT, banks, FMCG, pharma and other rate sensitives.

Foreign portfolio investors too, seem to have turned positive on Indian stocks. Strong third quarter results from private lender HDFC Bank and two wheeler makers - Bajaj Auto and Hero MotoCorp - contributed to the upbeat mood, boosted by foreign institutional buying to the tune of Rs 630 crore on Thursday. So far in 2012, these investors have pumped in over $1 billion (Rs 5,023 crore), compared with $385 million of net sales in the whole of 2011.

However, according to a recent survey conducted by Bank of America Merrill Lynch (BofAML), emerging market fund managers continue to remain underweight on India. About 61% of the fund managers polled said they were not comfortable investing in Indian equities. Emerging market fund managers have been underweight on India for 17 consecutive months, the BofAML survey said. Brazil, China, Indonesia, and Russia continued to be consensus 'overweight' among foreign investors.

Source: http://articles.economictimes.indiatimes.com/2012-01-20/news/30647358_1_aviral-gupta-indian-equities-fund-managers