This year will be all about stock-picking: ICICI Pru MF's Nimesh Shah

Election years have historically proved to be volatile, providing investors with intermittent investment opportunities, says Nimesh Shah, managing director & chief executive officer of ICICI Prudential Mutual Fund. In an interaction with Ashley Coutinho, he says the best way to accumulate equities in these times is to opt for the systematic investment route. Edited excerpts:
 
What is your outlook for the market?

From a valuation standpoint, the Indian equity market is fairly valued. Policy decisions by the Reserve Bank of India (RBI), end of the bond-buying programme by central banks globally, escalation of trade-wars, and the pace of foreign inflows would be significant triggers for the market this year. Also, with general elections round the corner, volatility cannot be ruled out. Historically, election years have proved to be volatile and in the election years 2004, 2009 and 2014, markets have provided investors with intermittent investment opportunities. During such times, the best investment strategy is to go for the systematic investment route to accumulate equities.

 

What is your view on mid- and small-caps as investment bets?

We were bearish on the mid- and small-cap segment at the start of 2018. However, after the recent correction, we believe this segment is better placed for selective investment. Even though the mid- and small-cap indices are trading at elevated valuations, there are several names available at relatively cheaper valuations now. So, this year is likely to be all about stock picking. For those looking to invest in broader markets, systematic investment plans or SIPs are the way to go.
 
Do you see a sustained recovery in corporate earnings in the coming quarters?

We believe the worst is behind us in terms of corporate earnings. Given that bad asset resolution is under way, a rebound in corporate bank earnings is likely as well. For the other sectors, we expect the earnings to grow at a reasonable pace. This view could come under review if there is any adverse development which could impair the earnings outlook projection.
 
Mutual funds have seen sizeable inflows this year. What is the way forward?

Mutual funds are a well-regulated and transparent products. Asset management companies (AMCs) and distributors have managed to increase investor awareness about mutual funds as an investment product, thanks to Amfi’s Mutual Funds Sahi Hai campaign and initiatives by Sebi. Retail investors are reasonably aware that inflation beating returns can be generated through equity investing. The total investor base currently stands at 18.8 million, a number that can significantly climb in the years ahead, if we continue to create awareness about the benefits of mutual fund investing. The default understanding among retail investors is that mutual fund means equity investing and, not debt, and this notion needs to change. 

 
Have fund houses learnt their lessons from the Amtek Auto and IL&FS episodes?

Over the years, the industry has evolved and embraced best practices such as having a robust, independent and transparent process for valuation of debt investments. Interest rate risk and liquidity risks have historically been managed effectively by the industry. Although there have been instances of credit events impacting investments by some schemes, these have been managed in a way so that there is no significant impact on the overall industry. It is clear that adopting the stringent corporate issuer selection process and ensuring adequate diversification are important in order to avoid adverse impact of such credit events.

 
Sebi reduced the total expense ratio for MF schemes. What is the overall impact of this move?

We believe that what works well for an investor may benefit the industry as well. A reduction in expense ratio is beneficial for investors, and will boost overall volumes as investors flock to this low expense and transparent product. So, while margins will go down, the rise in volumes can compensate for the decline.