 "Domestic cyclicals to outperform defensive stocks in 2-3 years: PVK Mohan")
Indices are trading over 1-month low amid weak second quarter earnings by blue chip firms. Where do you see the markets headed from here on? What are the near term support and resistance levels for both the Sensex and the Nifty?
It is difficult to predict the short term direction or levels for the market. But given the weak earnings season so far and some important events that can impact near term sentiment, we feel the markets may remain range-bound.
The US Federal Reserve has bolstered prospects for a December interest-rate increase. According to you, what is the possible implication of Fed move on Indian bond markets?
The timing and quantum of increase remain uncertain, but India seems well placed to tide over the volatility around this event. We believe as long as the pace of increase is moderated, there would is unlikely to be any major and sustained adverse impact on India.
Corporate earnings performance for the second quarter has been weaker than expected especially for large-cap stocks so far. Do you think this trend will continue in the coming quarters too?
The earning trend would remain below expectations but the subsequent quarters may show some sequential improvement. Overall we expect earnings growth of 7-8% for FY16 as against market expectations of 12%. FY17 is likely to be much better.
The Bank Nifty has been one of the worst performers in last few trading session with a fall of over 3%. However, Moody's has upgraded its outlook for the Indian banking system to stable from negative on gradual improvement in operating environment. How are you looking at the banking sector overall, especially largecaps like State Bank of India or ICICI Bank?
The banking sector seems to have been through a large part of the pain and as the growth in the economy picks up, it should benefit the sector. We, however, believe that the pace of improvement for the banking sector would be slower than earlier expected, in terms of credit growth and in terms of asset quality improvement.
Principal Growth Fund has been one of the good performers among the multi-cap category with over 20% return in 3-year. What is your approach in fund allocation and are there any kinds of stocks that you always avoid in your portfolio?
We are more bottom-up in terms of our stock selection and portfolio construction and believe that alpha mainly comes from superior stock selection. We focus on identifying companies with good growth prospects, attractive valuations, favourable risk-reward ratio and prefer companies who have a dominant presence in their respective sectors. Currently the Growth Fund is underweight Energy, Metals and Consumer (due to high valuations).
Within the equity MF segment, what strategy should one adopt while investing - should one look for thematic funds or index funds? Why?
It really depends upon investor objectives and would thus vary from person to person. It is preferable to have an allocation approach viz. a mix of large-cap, diversified and mid-cap funds. Sector funds are inherently more risky and could receive some allocation from investors who are willing to take that additional risk. Index funds are typically based upon the narrow indices such as Sensex or Nifty and are advisable for investors looking for indexed-returns and safety of large, known companies.
Should one look at the mid-cap segment at the current levels? Are there any sectors / stocks that are worthy of investment at the current levels?
When it comes to mid-caps, it is all about selecting the right stocks. For investors with a 3-year view, we do feel that mid-caps are an attractive option. Some of the sectors that we like include auto and auto ancillaries, cement, construction besides lot of bottom up opportunities based on recovery in urban discretionary spending.
Do you think investors will look at defensive bets now as compared to the policy / reform oriented sectors? What is your advice to an investor who wants to take fresh exposure in the rate sensitive sectors?
We believe that over a 2-3 year period, the returns from interest-rate sensitive stocks, especially the domestic cyclicals would outperform defensive stocks.
Given the volatility in the markets what are the recent trends with regards to new retail investors in equity-based mutual fund schemes?
The Mutual Fund industry has been witnessing inflows over the last 18 months or so. It is a very positive development. And the good thing is that unlike past times, the inflows have been stable across cycles rather than increasing sharply during periods of euphoria.