Investors should not worry about short-term market volatility: CEO Axis MF

In the near term, the biggest issue will be how GST implementation pans out

With the fourth quarter earnings season for 2016-17 underway, CHANDRESH NIGAM, managing director and chief executive officer at Axis Mutual Fund, tells Puneet Wadhwa that with the markets being fairly valued, the returns from here will be a function of which companies and sectors are able to deliver consistent growth. 

Edited excerpts:

Will markets move higher over the next 12 months, despite corporate earnings and capital expenditure cycle showing no signs of a pick-up?

The market never moves in a straight line. Corrections (stock price falls) are a healthy part of any bull market. While nobody can predict the market over a shorter time period, we feel that the medium to long-term prospects are sound, as the economy is set to turn around and the same thing should get reflected in corporate earnings.

How do you see foreign portfolio and mutual fund flows playing out over the next few quarters? Do you see active retail participation?

We expect flows to remain supportive. Domestic investors are in the midst of a structural rebalancing, away from physical and into financial assets; that process has a long way to run. Foreign portfolio investors have always been supportive of Indian markets, except during periods of crisis.

What are the key domestic and global risks to the rally? What is the probability you assign to these risks/events materialising? 

What shocks the market typically is not known risks but always what comes as a surprise — the unknowns. Having said that, in the near term, the biggest issue will be how GST (goods and services tax) implementation pans out and the potential for short-term disruption from that. Globally, we have seen that these sort of big changes do cause shorter term pain to the economy. 

What is your advice to both existing and new investors in equity markets? What about investors in the debt segment?

As I mentioned earlier, this is a time when India’s structural long-term investment thesis is getting a boost from all the structural reforms — inflation targeting by the Reserve Bank, GST rollout, bankruptcy reform, financial inclusion, fiscal prudence, to name a few. According to us, long-term investors (both debt and equity) should not worry about potential short-term market volatility and should invest to participate in this story.

Are the markets ignoring the likely impact of a deficient monsoon and GST implementation on India Inc and the economy?

Markets, in the short term, are all about sentiment and flows. These have been supportive of the recent rally. Having said that, we are also seeing a reduction in the India risk premium, due to the steady and continuous improvement in our macro and the structural reforms being carried out by the government. This is helping the medium-term bull case for both equities and bonds.

Which sectors offer valuation comfort at current levels? Which  ones will lead the next phase of rally?

With the markets being fairly valued, the returns from here will be a function of which companies and sectors are able to deliver consistent growth. In our portfolios, we have been overweight on private sector banks, quality non-banking finance companies, automobile and ancillary companies, and select media and consumer durable companies.

What is your view on banks investing in real estate investment trusts and infrastructure investment trusts?

This is an overall part of improving the capital flows into real estate and infrastructure sectors. While it might take some time for the structures to get launched and popularised, we are quite positive about the move.

What are your expectations from the March quarter results season and projections for FY18 and FY19?

Earnings are still weak for the broad market, although select quality companies will deliver. Broader market earnings should improve slowly over the next few quarters — although the rollout of GST and risk of shorter-term disruption make it very difficult to give a specific road map on earnings.