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What is your medium-term outlook on equity markets?
We remain fairly optimistic on the Indian equity markets over the medium to long-term. The overall corporate profitability is one of the highest witnessing strong growth over the past couple of years. Further, domestic participation and financialization of savings into equities and mutual funds may continue to remain strong. Central government helps in implementing economic reforms driving urbanization, formalization of economy (unorganized to organized), tax buoyancy and foreign flows. We believe given the above factors and favourable demographics may continue to drive strong overall growth for Indian markets.
What would be the impact of upcoming election on equity markets?
Our investment philosophy is to invest in companies which do well over the medium to long-term, irrespective of changes in macro factors including interest rates, inflation, trade numbers, IIP growth, etc. Our guidance to investors has always been to invest for the long-term and not to base their investment decisions based on macro factors such as election outcomes. Though we don’t base our investments based on election outcomes, we believe that a strong and stable government is key to implement social and economic reforms leading to higher corporate growth and profitability.
In run up to election, which sectors and themes are likely to benefit in the medium term?
As stated previously, our investment philosophy is to invest for the medium to long-term by avoiding taking investment decisions based on short-term events such as elections. Our endeavor is to find companies with the right fundamentals, strong growth, good governance practices, superior management capabilities and strong balance sheet to provide better return to investors. Keeping the above factors in mind, at present, our overweight sectors/themes are manufacturing & infrastructure, real estate & allied industries and pharma & healthcare.
Which category of equity funds should investors look at this juncture for lumpsum investment?
Individual investment decisions should always be made keeping in mind the risk profile and the investment horizon of the individual. Investment advisors should avoid the ‘one model fits all’ fallacy. Accordingly, our suggestion on allocation to equity funds depends on a host of factors including the risk profile of the investor, his current investments, income levels, etc.
What would be the impact of increase in interest rates by the Bank of Japan and US Fed in Indian markets?
As stated earlier, our investment decisions are based over the medium to long-term and are not driven by changes in global macro factors. We believe the companies in our portfolio will continue to deliver better than market growth, irrespective of changes in interest rates cycle. While increase in interest rates in global major economies may have some impact in the short-term on Indian markets, it is unlikely to materially alter our medium to long-term view on Indian equity markets.
SEBI regulator recently raised an alarm over stretched valuations of small and mid-cap stocks. What is your view on this?
Nifty Midcap 150 Fund is trading at 29x, +1.1 SD above averages while Nifty Small Cap Fund is trading at 20x, 0.7 SD above averages. (Source: Bloomberg) Given the rich valuations, we understand the regulators concern for small/ first-time investors investing in mid and small-cap stocks. At our end, we have been educating investors about the risks involved while investing in these stocks. With the regulator raising alarms, we have additionally disclosed certain risk factors for those invested/ investing in our mid and small-cap schemes on our websites. We have also disclosed ‘stress test’ results for our mid and small-cap schemes, highlighting how much time the fund will take to sell certain portion of its portfolio.
Mutual Fund investments are subject to market risks, read all scheme related documents carefully
