DBS Chola bets big on infrastructure

FUND SPEAK

Performance of a mutual fund scheme is not the only thing that matters, says R Rajagopal, chief investment officer of DBS Chola Mutual Fund, adding that it is actually the risk return matrix that becomes very important for a mutual fund in the long term.

Ever since Rajagopal joined the assets management company (AMC), it has been climbing fast on the growth trajectory.

If assets under management (AUM) figures are anything to go by, DBS Cholamandalam has been one of the biggest gainers in the month of June, growing by 22 per cent.

The investment head of DBS goes by the R-square formula to select his stocks and feels that systematic investment plans (SIPs) are the best place to park money for retail investors during volatile situations.

The mutual fund house is soon going to launch an Infrastructure fund as Rajagopal thinks that this is one of the hottest sectors right now, seeing enormous investments made here.

Also, the infrastructure companies are sitting on huge order books, which would spell wealth addition and profitability for the sector. It also uses risk mitigation devices such as derivatives for hedging during volatility. DBS' Hedged Equity Fund has, recently, declared a dividend of 5 per cent within a short span of two months.

According to Rajagopal, "The market rally not only signifies a milestone but also strong corporate fundamentals and liquidity driving the market." He expects the earnings growth to be in excess of 20 per cent.

"The markets are in a price to earnings growth (PEG) ratio of 0.9 and till the time they do not breach a PEG of 0.1, we are in a comfortable zone. However, it can happen that global liquidity suddenly evaporates, leading to a volatile situation," he said.

The fund house as pointed by Rajagopal, is overweight on banking, capital goods, real estate, construction and metals. It wants to remain underweight on pure refining and marketing oil companies because of the government intervention in these companies.

However, he thinks IT to be a very good contra theme as we need to see a couple of quarters before passing any judgment on these companies. The sector, which includes India's heavyweight blue-chip companies, he believes, will be a mainstay for the economy in long term.

His bullishness on banks is derived by the fact that India's gross domestic product (GDP) is growing by 9 per cent, which will give birth to a very strong demand for credit.

And he feels that Indian banks are prepared for it more so because of the Basel II regulations."The fee-based activity among the Indian banks is growing. They are raising more of tier-I capital. Of late our bias has been towards PSU banks," says Rajagopal.

On real estate, he thinks that the overwhelming response to the real estate IPOs itself speaks of the immense activity happening in this sector. There are some very good companies in this space with huge land banks. So, there is no reason to worry.

The fund house is also very bullish on media and entertainment space. "The multiplicity of channels has resulted in niche viewership. The software quality is also changing and with rising disposable incomes, this space is going to witness a lot of activity," he said.

"With the result season going on, our money will certainly move into companies that deliver expectations," he added.

However, he declined to comment on specific stocks.

He agrees that fixed maturity plans (FMPs) have been quite popular in the last few months but their indicative yield has been falling because money has moved into liquid plus schemes.

On mutual fund industry, Rajagopal says, " It is still in a nascent stage if you compare it globally. There is enough for every participant in this industry and retail investors' money is still to be tapped."