Baroda Pioneer Asset Management, a joint venture between Bank of Baroda and Pioneer Investments, with assets under management of about Rs 4,000 crore, sees volatile times continuing for quite a while. CEO Rajan Krishnan suggests investors ready an allocation strategy and stick to it in a talk with Ujjval Jauhari. Edited excerpts:
How do you assess the global scenario? Are the fears of a euro zone crisis overdone and the worst already factored into current markets and valuations?
There are a few concern areas in the global scenario. Europe is a bit worrying because of the cascading effect it could have in triggering a global recession. However, it is important to note that there is a consensus now among the various participants in Europe about solving its problem, without deferring it any further. This should help them in the long run.
In the US, it would be interesting to see how they move ahead. The US would have to nurture and rebuild their economic fundamentals for a few more years before growth can actually start kicking in.
I look at the global situation prevailing today as an opportunity for markets like India or China, where there is a strong domestic consumption story. Though, in India we are currently saddled with higher interest rates and higher commodity prices. The next two quarters would be very challenging.
However, if inflation settles due to a good monsoon and/or base effect, then there could be some respite from the high interest rate cycle we are witnessing. This could help Indian companies to make a strong comeback and improve their outlook for the year ahead.
Are the sentiments towards risk, bank stocks and cash at the same levels as in 2008? Is it time to hold cash or start investing?
In 2008, risk aversion was lower because most of us were unaware as to what to expect. Now it is a case of once bitten, twice shy. After what we experienced in 2008, today there is higher risk aversion due to the realisation that we are all wired and not disconnected after all.
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On the investment side, I don’t know if it is the best time to invest all your money into equities, as the markets can trend a bit lower. At valuations of 15 times the earnings multiple, one can start investing by gradually increasing portfolio exposure to equities. This could be through mutual funds, especially through Systematic Investment Plans (SIPs).
How have you been churning your portfolio in recent months and what is the strategy?
Earlier, we were underweight on the banking sector. We now see some value there, though there are some risks on net interest margins. We are underweight on information technology. In FMCG (fast moving consumer goods), we would have liked to be overweight but valuations are a bit stretched.
We are looking for opportunities and keeping some cash, both to protect but also to tap further avenues. Now that we are at a stage when interest rates are close to peaking, there is an opportunity to sell debt funds in a bigger way like we did in 2004-05, when they had become really popular.
How have investment patterns in the mutual fund industry panned out in the current financial year and especially in recent months? Have there been redemption pressures?
What we have witnessed from the start of the financial year is that there have not been big ticket inflows into equity funds. Most inflows have been through SIPs and this has seen a steady increase in the past few months. On redemptions, I believe retail investors redeem whenever they are in need of funds and don’t really rush in to redeem at the lows or book profits at the highs.
The savvier and more active investors, like high net worth individuals, do look at alternatives to equities when the going gets tough. However, the current worry is about fresh inflow into equity funds and, hence, the focus is on improving our sales efficiency across all segments.
What investment strategy should investors adopt?
I think simple strategies work best in a volatile environment. Investors can develop a strategy themselves or with the help of their financial advisor. The key is to have an asset allocation strategy in place. This has to be followed for at least the next 12-24 months or longer perhaps; after that, investors can look to rebalance their allocation if the need arises.
That way, I assume one would naturally be investing more money into equities due to the current low levels and then gradually shift to debt as the markets start peaking. One has to be disciplined about reviewing the allocations at regular intervals to remain ahead of the curve.
What is your outlook towards gold and crude oil prices?
Hopefully, crude should ease sooner rather than later, on account of a slowing global economy and with the Libyan situation settling. It has been a flight to safety towards gold and, hence, the prices have spiralled due to intense speculative interest. Once the risks reduce, more funds would go into equities. It is difficult to predict how much gold prices would come off but I am sure that the runaway prices would definitely be arrested.