 "S Naren")
Did the unexpectedly high mandate to the new government force you to juggle your portfolio?
The election outcome is a very big structural positive for capital markets. The results far exceeded exit poll results and surprised us positively. Since it was difficult to predict uncertain events, we maintained allocations in our schemes close to the benchmarks. With event risks eliminated and a big positive outcome, our portfolios are positioned suitably to participate in the process of growth recovery.
What is the new theme emerging now?
Considering potential reforms by the new government and the fact that the economic indicators are seeing a positive trend, we believe sectors/themes such as banking, infrastructure, industrials, public sector undertaking (PSUs) and the mid- and small-cap space could provide the best opportunities.
How well placed are you to take investment decisions?
With event risks (elections) out of the way and the growth momentum likely to strengthen from 2015, supported by better global demand and de-bottlenecking of existing investment projects, we expect corporate balance sheets to improve. The new government’s pro-growth agenda could drive earnings and stock prices through three-five years, offering us significant risk-reward opportunities for investment.
How are you striking a balance between large- and mid-cap stocks?
We are bullish on mid-caps, relative to large caps. With its focus on industries and infrastructure, the new government will speedily push growth to double-digit levels in the coming years. Backed by growth in industrial production and infrastructure, mid-caps should do well through the next three-five years. Over a five-year investment horizon, the potential of returns in small-caps is the highest, relative to large- and mid-caps, based on attractive valuations.
Is it time to move away from stock-specific calls and play themes?
We believe stock selection is always a blend of top-down and bottom-up strategies. So, while we are positive on themes such as infrastructure, banking, mid-cap and small-caps, we believe in making bets that are fundamentally sound and have the potential to create wealth with a long-term view.
Which sectors will you avoid?
Relative to previous years, when consumer goods, pharmaceuticals and software were the favourites, now, cyclicals will offer better value. Companies and businesses that thrived largely due to the rupee’s depreciation in recent years are unlikely to be the winners. Likewise, the consumer space, which is already trading at 30 times the earnings, looks far less attractive compared to other cyclicals that offer better value.
What is your call on public sector banks?
The banking sector is a play on economic recovery. Improving macro-economic variables such as the current account deficit, the fiscal deficit and inflation could benefit the sector. A recovery could also help improve the asset quality of banks. Better loan growth might also be seen. The new government is likely to introduce a trend of reforms for public sector banks, which could resolve many issues. We are positive on select PSU banks.
Where could the benchmark indices stand by the year-end?
While it is difficult to state that in terms of numbers, we believe the current period is similar to 2004-06, when fundamentals initiated a mid-cap bull run. With a single party drawing absolute majority and the fact that the new prime minister has demonstrated a focus on administration and execution in the past, a major growth spurt in the economy is likely through the next three years. This is likely to drive corporate earnings and stock prices, offering reasonable returns to investors through three-five years.
Amid the Reserve Bank of India (RBI)’s relaxation of gold import norms, what will you advice investors, in terms of investment in gold?
RBI’s recent move is likely to have a positive impact on the asset class. It will also limit the scope for smuggling activities related to gold. As a fund house, we maintain gold needs to be part of an investor’s portfolio, up to 10 per cent. Through the past few years, Indian investors have developed a fancy towards this asset class. We believe investors should switch from physical assets to financial assets for potentially higher returns through three-five years.
