What is your outlook on equity market for 2016?
Compared to this year, 2016 would be slightly better.
To start with, falling crude oil price has helped the Indian economy reduce its current account deficit (CAD) which stood at 1.3% in June 2015. Further, commodity prices will continue to fall and may touch multi-year low due to the slowdown in China, which is the largest consumer of commodities. Any slowdown in China can have a huge impact on the demand side. However, it will help India reduce its import bills. Also, India is expected to grow at a higher pace compared to other emerging economies like Brazil, Russia, Indonesia, Mexico, Malaysia and China. This is evident from the fact that India is now out of the fragile-five countries list.
On the domestic front, low inflation will be the new normal for India. This will give room to RBI to cut the key repo rate further by 25-50 bps in 2016. In 2015, RBI has cut repo rate by 125 bps to 6.75%. However, we are yet to see any impact of this on the GDP growth.
In 2015, currencies of many countries corrected sharply. However, the rupee was one of most resilient currencies among the developing market currencies. The rupee may depreciate 2-4% in 2016.
In the meantime, the capital expenditure of private sector will continue to show sluggishness. The government expenditure is likely to help maintain the balance in growth and support the India growth story in 2016.
We have already seen a significant jump in capex in roads, railways and defense. Further, implementation of Seventh Pay Commission and prospects of good monsoon (Historically, bad monsoon persists for two consecutive year on an average. We have already witnessed two years of bad monsoon due to EI Nino effect) will increase discretionary spending by consumers.
The good thing is that savings have gradually started moving from physical assets to financial assets. All these factors will help sectors like automobile, financial services, pharmaceuticals and cement.
Also, PE is at a reasonable level currently. Corporate earnings growth has bottomed out and we believe that it will peak in the days to come.
However, investors should not expect higher returns from equity markets. We believe that the market has the potential to deliver a return of 15% in the next two years.
Can active fund managers continue to beat benchmarks in future? Will there be challenges in generating alpha and finding the right stocks to beat indices?
Good fund managers can generate an alpha of 3% in the next three years. Going forward, given the volume and potential of Indian markets, active fund managers will continue to beat indices over the long time.
Basic fund management strategies are more or less similar across fund houses. How difficult is to stand out from the crowd, especially when it comes to fund management?
Though fund management strategies are more or less similar across AMCs, what matters is how you maintain discipline and perform consistently across different market cycles. Our differentiating factor is the systems and processes adopted by us in fund management. Further, we review our systems and processes periodically.
Fund management is buying a business rather than buying a stock. And buying a business requires long term focus. However, sometimes fund manager have to take short term call to deliver performance. How difficult is to deal with such a situation?
I believe there should be a balance in the portfolio. Along with long term performance, short term calls are equally important to deliver sustainable performance.
What category of equity funds would you recommend investors to invest at this juncture?
Investors can invest in multi-cap funds and balanced funds at this juncture.
