Given the volatility in markets, do you expect ELSS schemes to get decent flows from investors this year?
ELSS schemes are good vehicles to take exposure to equity markets. Apart from tax benefits, lock-in ensures that investors remain invested for three years at least and thereby the probability of earning higher returns goes up. The current volatile market scenario provides a good entry point for long term investors as it provides opportunities to buy quality businesses at reasonable valuation. Accordingly, I believe investors will keep their faith with ELSS funds and we should see decent flows into these schemes.
Where do you plan to deploy the inflows which you will receive in ELSS, considering such schemes have a 3-year lock in?
We believe the economy has bottomed out and we are at the cusp of recovery in corporate earnings. However, we feel, recovery in earnings will not be very sharp and would be a gradual process. In such an environment, stock picking plays a very important role. In terms of sectors, we are positive on cyclicals. Within this segment, we are positive on cement, engineering, procurement and construction (EPC) companies and select capital goods names. Further, with the inflation going down and economy recovering, consumer sentiments should improve and hence companies in consumer discretionary space with strong brands and distribution reach should also benefit.
Your Budget wish list…
In general, our expectation from Budget is that it should be pro-growth and encourage investments in the economy. With the investment cycle still very weak and private sector capex not happening, it would be important for the government to signal how it intends to boost the economy without compromising on fiscal consolidation.
How does India stand vis-à-vis other emerging markets at this juncture?
India being a net importer of commodities, particularly crude, is in a much stronger position as compared to its emerging market peers who are commodity exporters and have been hit hard by correction in commodity prices.
To what extent will our markets be affected by global developments in the short term?
Global risk-off events impact short term flows and create volatility in the market. In a globalized market, India cannot remain completely isolated from such developments. However, it is important to remember that India is on a much stronger footing as compared to its peers to handle any such phases of volatility due to its strong macro fundamentals as reflected in its current account deficit, inflation and forex reserves. Hence, the impact of such events is likely to be temporary and should be seen as an opportunity by long term investors to increase their equity exposure.
What key triggers are you looking out for domestically?
Recovery in corporate earnings would be the most important driver for the market. From domestic perspective, government’s continued focus on reviving investment cycle, improving consumer sentiments on account of overall economic recovery, lower inflation and interest rates and normal monsoon leading to alleviation of stress on rural economy are some of the key triggers to watch out.
MFs are getting decent inflows through SIPs. Do you think this trend will continue? What could derail it?
In CY’15, domestic mutual funds recorded highest ever inflow at about Rs. 72,800 crore and the trend of domestic flows have continued in the current year as well. With the last one year returns being negative, investors may start worrying. However, investors would be well advised to remember that one year is a short period from equity investing perspective and ongoing time and price correction is giving good opportunity for investors to increase their equity exposure.
A prolonged period of negative returns or a major global risk off event leading to a big selloff may take some risk averse investors away from the market.
Which is your favorite book and why would you recommend it to others?
“One Up on Wall Street” by Peter Lynch and “Thinking, Fast and Slow” by Daniel Kahneman are my favorite books. “One Up On Wall Street” presents the art of investing in a very simplified but effective manner. It teaches you how one can pick ten baggers by observing things around and doing homework on them.
On the other hand “Thinking, Fast and Slow” is about understanding behavioral biases that lead to wrong decisions.
