ICICI Prudential AMC Chief Investment Officer, Equity, Sankaran Naren tells Puneet Wadhwa the key concerns for Indian equity markets, effect of the euro zone crisis on global equities and investments in SIPs. Edited excerpts:
How are the foreign institutional investors (FIIs) viewing the macro-economic developments in India? What are their key concerns as regards the Indian equity markets?
The only concern right now is that inflation continues to be above the comfort zone. Once inflation moderates and the negative news flow gets over, they will gain more comfort and will turn positive.
What is the overall outlook for global equities as an asset class, in the backdrop of developments in the euro zone and the possibility of a slowdown in the US economic growth?
At this point of time, the global equity markets are attractively valued as interest rates are very low across most of the developed world. One would gain from investing in equity vis-à-vis debt. In markets like India and China, valuations have corrected and now provide a good investment opportunity.
Are you completely invested in the markets at current levels? Can you broadly outline your investment strategy for the next few quarters?
We are long-only investors, who are more or less continuously invested in the Indian equity space. Our view has been that there are not many strong areas of undervaluation and overvaluation in the market. It is a bottom-up strategy that will largely govern investments during the current environment. We believe outperformance will now come from picking the right stocks with from a long-term perspective.
How do you compare Indian valuations with other emerging markets?
Indian valuations are higher, but it also accounts for the potential of higher growth in the market/economy.
Which sectors are you bullish/bearish on? What is your outlook on corporate earnings for FY12?
There are no strong sector calls at this point of time given that the interest rates have been on an upward spiral. If we have a very good monsoon this year, many of the interest rate-sensitive stocks can be considered in a hope that inflation will moderate. We have been negative on merchant power for a long period of time. We do believe this sector is not likely to do well as this is a sector with a fairly large cyclical downturn. In the near term, the corporate results are expected to be muted due to a combination of high interest rates and high inflation, particularly in case of non-commodity companies. However, the outlook for long-term earnings continues to be positive.
What is your advice to retail investors in the current situation?
Our advice for retail investors is to follow systematic asset allocation and systematic investment plans (SIP).
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The market will continue to demonstrate volatility and only a judicious asset allocation approach will give investors the opportunity to adopt the counter -cyclical investment philosophy of investing when the markets go down and booking profits when the market goes up. Prudently following asset allocation strategy, SIP and due diligence will help investors create a strong portfolio with high risk adjusted return potential.
What are the returns that the ICICI Focused Bluechip Equity Fund has been able to generate for investors in the last one year? Do you think that this will be maintained, since the fund has significant exposure to interest rate-sensitive sectors?
The fund has consistently outperformed the benchmark and has delivered returns of 13.47 per cent over one year, 22.52 per cent over three years and 17.92 per cent since inception as against benchmark returns of 6.30 per cent, 11.81 per cent and 4.36 per cent for the same period on June 30. In terms of exposure to rate-sensitive sectors, the belief is that we are at the peak of the rate hike cycle, with food inflation coming off. Therefore, there is little risk of interest rates on the overall portfolio.
