Interview with Gaurav Jain, Director at Hem Securities.
Uttaresh Venkateshwaran, Sunil Matkar | Apr 06, 2018 03:19 PM IST | Source: Moneycontrol.com
While the market may have fallen around 10 percent from its peak, experts such as Gaurav Jain, Director, Hem Securities believe that the worst may be over now.
“In the next quarter, the market should settle and then a pullback is likely,” Jain told Moneycontrol’s Uttaresh Venkateshwaran & Sunil Shankar Matkar. He expects largecaps to move ahead and midcaps will play catch-up.
He expects a broad-based pick up in the market going ahead. “In the past few days, a few stocks have risen, which have pushed the market. We should start seeing a pick-up in many more stocks. Essentially, people are not in a panic stage, while retail investors have looked to book profits and are not in a hurry to invest,” Jain further added. Edited excerpts:
The market has been trading off the previous high points. What is the outlook for D-Street going ahead?
Over the last quarter, we saw events such as the Union Budget, which introduced taxes on long term capital gains (LTCG). Global markets reacted negatively, while big IPOs also sucked liquidity from the market, among other factors. As such, the market had a good run up in the past two three quarters.
In the next quarter, the market should settle and then there could be a pullback. Next quarter should be of accumulation and positive movement.
So, what kind of returns are you expecting from this market?
We are in an election year. So, the market could behave differently with results coming on. Overall, for FY18 we are looking at 8-10 percent returns.
What can be seen as triggers for this market?
Firstly, many companies’ results were affected in one quarter on the back of Goods and Services Tax (GST). With new GST Bill coming in full flow, it should give positive flow for most sectors. Even as the e-way bill is introduced, some companies could face some issues at the start and then gradually get comfortable with it.
Secondly, look at growth visibility in the Sensex and Nifty. Several managements are hinting at positive cues. Earnings could improve and several companies have done their expansions on their side.
Lastly, we have to wait for how monsoon pans out. So, overall there is positive momentum and investors are quite bullish on India even at this point.
Does that mean we could go back to the record high levels?
What are you hearing on private capex plans? Are they willing to spend on that front as well?
Most companies, the big ones especially, have done their share of capital expenditure. One important reason why this is happening is due to change in technology that is erupting. For instance, look at telecom sector. In case Reliance Jio comes up with a new technology, rivals also tend to counter those. In case of textiles, many things have happened and firms are adding up more technology and machines. With changing technology, fast-growing companies need to adapt to it and they are deploying resources in those areas.
Could you throw some light on the state of midcaps? How do you expect them to perform going forward?
Largecaps should start moving first, going forward, followed by midcaps. Investors currently are playing conservative as they saw their stocks bleeding all through the last quarter. Hence, the money is going into largecaps right now.
But what about valuations for several segments in the market…how did the IPO market perform in FY18?
Look at the number of IPOs that came up with multiples of 30 and 40 times. Fund managers that we spoke to are talking about large systematic investment plans (SIPs) that have to be deployed into such stocks and that is probably why such high multiples were seen.
In FY17, we saw around 37 IPOs hitting the market and this figure could be higher this fiscal, looking at the prospectuses filed and information available from merchant bankers. Also, IPO sizes are a lot larger now.
But will investors have the appetite going forward?
Institutional investors will have it. They will always look at beaten down stocks and they also do not have issues with funds.
Currently, retail investors are investing less. If they have Rs 100 with them, they are looking to invest Rs 20 right now. In fact, many retail investors have booked profits in the past quarter.
Is there much downside from the current market levels?
I don’t think so. The worst should already be over. In the past few days, a few stocks have risen, which have pushed the market. We should start seeing a pick-up in many more stocks. Essentially, people are not in a panic stage, while retail investors have looked to book profits and are not in a hurry to invest.
So, what will your advice be to a 35-40-year old investor?
They must invest in mutual funds. But you could also do it making money by directly investing in equity markets as well.
What sectors are you looking at currently?
We expect pharmaceuticals to perform, while it could be a challenge in case of information technology names.
You can look at infrastructure sector as well. These companies are flooded with orders.
On banks, it is clearly not the case that all PSU banks are bad. Right now, people are not trusting PSU banks and private banks are usually considered more transparent.
It is a play on perception and that could be seen in cases of a recent listing such as Bandhan Bank. The IPO came at a very good multiple and still listed at good returns. These are companies with professional management which are growing along with having fast execution and chasing for business. As such, we were seeing a shift to private sector banks, but currently investors also do not know about hidden concerns in PSU banks too.
LTCG tax on equities has become a reality now. Are you getting queries about it and what are you telling them?
I think the sentiment around it has been already digested in the market. People are taking in the transition in stock market. I feel that this is not an issue at this point.
How much of a risk is political scenario for the market?
The market tends to be very volatile on political instability. As soon as there are chances of dent to existing government, it starts reacting. The question is not about which government, but about a stable one. This is important from a foreign investor perspective. These would have regular impact but not larger level…the market will make a comeback once the elections are over.
As we move into end of this year (and closer to general elections), investors may hold for couple of months to understand what is happening (on the political front).
On the global front, any statement from the US with respect to protection of its own trade boundaries is a major risk for the market.
Lastly, what are your top stock picks for FY19?
Disclosure: Reliance Industries Ltd. is the sole beneficiary of Independent Media Trust which controls Network18 Media & Investments Ltd.
Don’t see property prices going up for now: Renu Sud Karnad, Managing Director, HDFC
ANIL URS | Published on March 14, 2018 | The Hindu Business Line
BENGALURU, MARCH 14
Renu Sud Karnad, Managing Director, HDFC, in an interview with BusinessLine, explains how the realty and home-loan sectors are shaping up as the new regulatory regime sets in. Excerpts:
How is the property market doing pan-India?
Apart from New Delhi and Chennai, where we see slow offtake, the market is good in other major cities. By good I mean, we are doing good business.
How do you see property prices moving?
As I see it now, I don’t see any increase in property rates happening.
What about interest rates, especially in the wake of rising bond rates?
Yes. Interest rates are rising a little bit. But let me put it this way. I don’t think the rates are going to come down. I think next year we will see a quarter to 1 per cent increase in rates.
Is this rise in rates low, or how do we understand it?
A quarter to half a per cent is nothing when compared to the high interest rate days, when home loans were going at 13-14 per cent. Now they are at 8.3-8.4 per cent. So they may go up to 8.9-9 per cent.
How is HDFC’s home loan growth?
At 23 per cent, our home loan growth is excellent. We have seen good growth coming from Mumbai, Bengaluru, and Pune. In the National Capital Region (NCR) it is a little slow. Otherwise, home loan growth normally is about 15-18 per cent.
Are any banks on your radar for acquisitions?
We are always on the look out whenever an opportunity arises.
How far are you in picking up CanFin Homes?
Actually, you should ask them, because five to six people are talking to them. I don’t know what pressure of time they have and don’t know when they need to announce it. Yes, we are also talking to them.
Have you firmed up your business plan for the next fiscal (2018-19)?
We are in the process. But I can tell you we are looking at 15-18 per cent growth.
How is the borrowing by property developers?
They, I think, are now looking at new avenues. PE funds are giving them money. Banks have also started to explore. Once the sector gets used to new regulatory framework, we could see good amount of lending.
Definitely the last one year had been challenging from them. But I think in the next six months, things should settle down.
Aim to add incrementally to your portfolio over time particularly when the chips are down.
Dipan Mehta | Mar 05, 2018 10:22 AM IST | Source: Moneycontrol.com
Go for direct equity with the help of an advisor or a portfolio manager because mutual funds have high expense ratio and inherent disadvantages, Dipan Mehta, Director, Elixir Equities said in an exclusive interview with Moneycontrol’s Kshitij Anand.
Q) The tables have turned in favour of bears at least in the medium term. The Indian market has become a sell on rallies kind of market. What is your assessment of the market at current juncture?
A) This the fifth year of a bull market which has been a slow steady one with very little volatility. There have been a few corrections and we are in the middle of one at present. For the long-term investor, this is still a buy on dips market.
Whether this correction will deepen or not will become evident over the next 2-3 weeks. If a lower tops/lower bottoms formation get created and broad market indices trade below their 200 DMA (which they are not at present) then we may be in for an extended sell-off or a mild bear market.
Q) What is your advise to investors who want to put Rs 10 Lakh into markets? He is in the age bracket of 35-40 years. He/she is looking at forming a portfolio with direct equities, MFs, a part of fixed income as well?
A) Go for direct equity with the help of an advisor/portfolio manager. Mutual funds have high expense ratio and inherent disadvantages. Set aside an amount of emergency plus 1 year’s salary/income into debt and put the rest into good quality stocks.
Aim to add incrementally to your portfolio over time particularly when the chips are down.
Q) What should be the ideal strategy for investors in terms of sectors? Do you think PSU banks are a good buy at current levels? What are the sectors which you think are likely to show momentum in the year 2018?
A) PSU Banks, IT and Pharma are to be avoided.
-25-35 percent should be in private sector retail banks and NBFCs.
-15 percent in auto and related ancillaries,
-15 percent in Indian FMCG stocks,
-35 percent rest in domestic consumption stocks such as building materials, appliances, aviation, retail, gaming, entertainment, media, fast food, branded apparels, and innerwear.
Q) The US Fed signalled a minimum of 3 rate hikes for the year 2018. Do you agree the global overhang is likely to weigh on Indian markets for the rest of the year?
A) No, but there will be a knee-jerk reaction whenever there is a global sell-off. With the rise and rise of domestic mutual funds, the influence of the foreign investors has reduced dramatically which means that the co-relation on a medium to long-term has weakened.
Moreover, foreigners have been investing for 2 decades and they have a more mature approach to India. We are a better-understood economy and capital market.
Q) What should be the right strategy for investors right now – sit on cash and wait for a dip or deploy cash incrementally throughout the year?
A) Nibble into the bluest of blue-chip stocks. Companies which have missed in the bull market so far must be targeted for investment. Investors must endeavour to improve the quality of the portfolio.
There are two-fold benefits. If the bull market resurges, then these will be first of the block and gain market leadership. Should a bear market evolve, then the damage will be less and investors will be able to sleep better knowing they have quality stocks in their portfolio.
Q) What will happen in the banking space given the fact that the cost of borrowing is inching higher. The RBI might keep rates on hold in its next policy but may raise rates in 2018?
A) Private sector banks and NBFCs will survive and thrive in every interest rate scenario. Growth and profitability will be temporarily impacted but the process of private sector gaining market share at the expense of PSU lenders will continue and gain traction.
Q) With Dollar gaining strength there is a higher possibility of rupee weakness. Which sectors or stocks likely to benefit the most? What is your target level for the currency?
A) Sectors which will benefit are obvious but be sure to assess the basic underlying fundamentals. No business will create value just because the currency is depreciating. Our view on the Rupee is not so negative.
RADHIKA MERWIN Interview with Harshala Chandorkar, COO, TransUnion CIBIL
Published on February 25, 2018 | The Hindu Business Line
Arguably no single data point determines your credit-worthiness, or your prospect as an entity worthy of a consumer loan or a business loan, as your credit score. TransUnion CIBIL is one of four credit bureaus in India that assess you for that. There are currently about 37 crore retail borrowers and about 1.3 crore commercial borrowers on the TransUnion CIBIL Consumer and Commercial bureau. That portfolio also gives it a vantage view of the banking and economic landscape. Excerpts from an interview with Harshala Chandorkar, Chief Operating Officer, Transunion CIBIL:
What is your sense of corporate lending trends, which appear to be recovering?
The NPA woes of the banking industry in the commercial lending space indicate that the mid-corporate and larger SME segments have taken the biggest hit. TransUnion CIBIL Commercial Data analysis highlights a significant chunk of accounts that are bad in one bank but not bad in another. The latest FIBAC report on Productivity in Indian Banking states that a significant part of latent NPAs could slip in the next few quarters. The revenue pool of mid and large corporates will probably stay subdued for the next 4-5 years due to stress in the portfolio.
The banking industry needs to invest in new credit models for commercial customers that rely on commercial credit information from TransUnion CIBIL and analytics to complement banks’ capabilities in credit assessment and detecting early warning signals.
What’s the outlook on retail credit? Consumer loans seem to be driving overall lending.
With the availability of credit information and progressive policies on financial inclusion, retail lending has grown profitably. Over the past five years, there has been an estimated 16 per cent annual growth in disbursement and over 30 per cent annual growth in bureau enquiries. At the same time NPAs and delinquencies on retail lending have been historically low.
The nature of retail credit is changing rapidly in India as the share of products in new accounts opened has evolved, with gold loans and consumer durables gaining significant volumes and accounting for almost 50 per cent of all new accounts opened. This growth has been accompanied by a significant drop in ticket sizes as financial institutions are becoming more and more willing to extend low-value loans. With certain other retail products, the ticket sizes have actually increased, prominent among them being personal loans — indicative of the increasing credit-willingness of the Indian borrower and a supply-side push — and home loans and auto/two-wheeler loans – indicative of the overall increase in the values of the underlying assets funded. In addition, the share of youth in retail credit is growing: millennials’ share of accounts opened has increased to 40 per cent.
How do you see the bureau evolving in the near future?
The next stage of evolution of India’s credit information infrastructure will be the usage of credit information data, insights and solutions for further expanding access to credit, driving credit penetration and financial inclusion.
Demonetisation has paved the way for a cashless and digitised economy. Bureau solutions for instant verification and ‘decisioning’ are paving the path for driving digitised, quick, easy and affordable access to finance. Verification solution enables credit institutions to authenticate the identity of the consumer in real time at the point of application. As a result consumers are able to get the loan approval within minutes of applying. Yet another advantage is cost-effectiveness while establishing a consumer’s identity. Bringing down this cost can help banks and credit institutions make lending decisions quickly, at cheaper KYC costs, and thereby increase business growth and credit penetration.
The potential of alternative data usage for credit decisions is another significant domain. To expand and increase the breadth of information for making lending decisions even more comprehensive, we are in discussions with regulators to allow for contribution of ‘post-paid’ information on telecom customers. Several World Bank studies have indicated that inclusion of reporting of non-financial payment data (alternative data) proves extremely beneficial for making lending decisions, specifically for the segment that does not have access to credit. With access to affordable credit, new credit consumers are able to build assets. Those financially underserved consumers who have a positive payment records in non-financial obligations like telecom will have the ability to access affordable credit.
The extension of the credit information bureau to cover a larger population will enable a majority of Indians who are self-employed, or employed in the unorganised sector, to get a credit history and enhance their eligibility for credit from banks. Incorporation of telecom and electricity bill payment records into the credit information bureau can unleash this enormous potential to extend the penetration of banking in India. There is compelling business logic for utility and telecommunications firms to begin fully reporting customer payment data to credit bureaus.
But only a few banks use credit score to offer differentiated rates to customers.
Risk-based pricing in still at a nascent stage in our country. Both in the commercial as well as retail segments, pricing offers an opportunity to strengthen performance in the short term. Some progressive lenders have initiated a disciplined approach to risk-based pricing and this could improve banking profitability by 20-30 basis points. Further, at the bank level, banks need to deploy models to estimate customer price elasticity to introduce value-based pricing.
Risk-based pricing of loans helps both the lenders and borrowers alike: the lender can assess the risk value of a customer before deciding to offer a loan at a particular rate, while customers with a higher CIBIL score benefit by getting lower rates as compared to customers with a low scores. The benefits thus ensure that customers work towards keeping their scores and credit-worthiness high.
Mahesh Patil, Co-CIO, Aditya Birla Sun Life AMC on how he is creating alpha in the large cap space, his contra calls and more.
By Morningstar Analysts | 27-12-17 |
The asset size of Aditya Birla Sun Life Frontline Equity Fund has crossed Rs 20,000 crore. Do you see size posing an issue to manage this fund going forward?
We maintain a good diversification in this fund by having exposure across sectors. We aim to beat the benchmark consistently and incrementally rather than taking very large sectoral bets. Given that the fund invests at least 80% of its assets in large cap stocks, we don’t see size posing as a challenge. Besides, the core of the portfolio has very long term holdings. That said, as the fund size increases it becomes slightly more difficult to build or unwind positions in stocks and needs more effort. But it is part of the process and does not affect the performance significantly.
We have a large number of stocks (60-70) in the portfolio as compared to other similar funds in the industry. Before deciding the quantum of exposure warranted in any stock, we take a close look at the liquidity of the stocks. This strategy allows us to manage large size.
It is becoming difficult for managers to generate alpha in the large cap space. How do you overcome this challenge?
We are seeing a huge rally in the mid and small cap stocks and large cap funds obviously can’t take exposure to such stocks. So multi-cap funds have been able to generate decent alpha by maneuvering where the opportunities are.
As markets mature and price discovery happens across stocks its going to become difficult to generate alpha in large caps. The alpha generation which we saw in the last three to four years would compress going ahead. This is because the alpha was high as compared to the historical average, especially during calendar year 2014-16.
We never target to generate superlative alpha in large cap funds. Instead, we endeavor to find some new stock ideas every year which keeps the portfolio fresh. If there is a serious underperformance, we are nimble enough to take corrective action. While everything is fairly priced in the market at this juncture, we try to continuously look out for undervalued companies. Some amount of contrarian investing and moving away from the crowd helps to spot early turning points in stocks/sectors. Similarly, we maintain a discipline to trim exposure in certain stocks that have overshot their valuation target. This strategy enables us to buy stocks which are relatively cheap in terms of valuation. So some amount of active management is also required at this juncture to generate alpha in the large cap space.
In which sectors/themes are you deploying the steady inflows coming in equity and balanced funds?
We have been overweight on banking and financial services. Financial services sector has had a good run and the valuations have moved up. Hence we are more discrete now in choosing the right segments that offer better growth. While we prefer private retail banks, we are slowly warming up to corporate banks because of some clarity emerging on resolutions of bad debts and a cyclical recovery in economy.
Besides, we are positive on consumer discretionary space. We are seeing a higher demand for discretionary consumption as the per capita income is moving up in India. Further, the implementation of GST will benefit players in the building material, consumer durables and retail space. Rural consumption is also starting to improve with normal monsoons and government focus on stepping up rural spending.
We are fairly overweight on metals. Metal prices are steady as China is cutting down capacity on the back of environmental issues which is supporting price. Indian companies are also deleveraging which will increase their equity value.
Another sector where we are taking a contrarian call is telecom. We are seeing consolidation happening faster than we expected in this sector. While there is still some pain for a few quarters, over a three-year time frame it could be a good time to look at some leading telecom companies.
We are selective in the infrastructure space. Road, railways and urban transport are some pockets where there is significant traction. Companies positioned in this sector are expected to see good increase in their order books.
Post SEBI’s diktat on scheme categorization, how are you restructuring your funds? Are you planning to merge smaller schemes?
Fortunately, we have been working on consolidating schemes much before the SEBI circular came out. Most of our equity funds are aligned as per SEBI categorization. We would look to merge some thematic funds.
Overseas fund of funds category is seeing continuous outflows. What are the reasons for the waning demand for this category.
The awareness level about this category is low. Domestic market has been doing well so people are preferring to invest in India. Overseas fund of funds have done well though.
As markets mature and you see enough ownership of domestic funds, people would look to invest outside India. There are a lot of new generation companies which investors can take exposure through these funds.
Though taxation of this category is an issue, you need to realize that if you are making good returns it should not be a problem. HNIs who already have a high exposure to India can look at these funds. Also, those wish to send their children overseas for education can consider these funds because the underlying returns are dollar based. To some extent, you are taking the currency hedge through these funds.
When do you see private-sector investment picking up?
Private sector investment has been elusive. But there are a couple of factors which indicate that investment will pick up one year down the line. Firstly, capacity utilization has bottomed out and is showing early signs of improving. Secondly, while a lot of large corporates in metals and infra space are saddled with high debt were are seeing the deleveraging cycle has started for some companies. Corporate debt to GDP which peaked out in 2016 is starting to come off. Finally, bank recapitalization would enable corporates to re-leverage and begin the next capex cycle. Sectors like Steel, Oil and Gas, fertilizer and auto are the first to see a revival.
During every budget we get to hear about suggestions to reinstate long-term capital gains (LTCG) tax on equity investments. Some say that exemption of LTCGT can lead to market manipulation. What are your views? If the government introduces LTCGT what would be the impact on markets?
The exemption of LTCGT has helped attract investors in equities. But that’s not the only reason why people invest in equities. They invest because they expect better returns. If there is money to be made in markets, I don’t think it would deter investors from this asset class. So introduction of LTCGT would not have an impact on long term investors. However, it could hurt the sentiments in the short run. We could see some curb in short term speculative money moving in stocks having weak fundamentals.
How has your investment philosophy evolved over the years?
While our broad philosophy has remained the same, we have started giving more attention to management quality while evaluating companies. Our time horizon of owning stocks has also increased and we are evaluating companies with a three-year perspective. There is a larger focus on how companies are generating free cash flows and how it is being utilized. These factors impact the PE multiples. So we are willing to pay a premium if these factors are favorable. To sum up, we have been incorporating these factors in our philosophy.
Your favorite book
One book which I found interesting is ‘Good to Great’ authored by Jim Collins. The book gives good insights into building an organization and focuses on what really matters to not only to survive and endure but to excel.
Several cities under the Smart Cities initiative hold a distinct advantage and can be safe bets for ‘smart’ real estate investments, say Mehta.
Sarbajeet Sen | Retrived on 1st Jan 2018 | MoneyControl.com
The real estate sector has seen some major changes in 2017 including ushering in of RERA. It also had to bear the impact of demonetisation, which slowed down sales. In an interview to Moneycontrol, Harshil Mehta, Joint MD & CEO, DHFL, tells how he sees property prices and home loan rates moving in the New Year.
Year 2017 saw the Real Estate Regulation Act (RERA) coming into play. How has the new Act impacted the real estate market?
RERA is a well-timed effort by the government and a good step towards accomplishment of ‘Housing for All by 2022’ and other housing and housing-development related initiatives. Several states have implemented RERA and has positively impacted buyer sentiments as a result of the mandatory disclosures of project details and strict adherence to project deliverables such as the area, legality, amenities and the quality. It has also ushered a more transparent ecosystem for developers and housing finance companies. DHFL has also undertaken a drive to assist developers in various states to help them understand the regulatory implications of RERA and become RERA compliant.
How do you see home prices moving in 2018, especially in the affordable segment?
We do not foresee any reduction in prices in the affordable housing segment because of the increasing demand and the limited supply to meet this demand. To attract buyers and maintain sales volume, developers are launching attractive offers and other benefits to encourage customers to fulfill their aspiration of owning their dream home.
Home loan rates have come down substantially. Do you think there is a likelihood of further lowering of rates by lenders?
Owing to the last few monetary policies, home loan rates have stabilised and we do not foresee any further reduction.
So, for those waiting to buy property, do you think this is a good time?
Yes, it is a good time for the buyer.
What is the loan bracket that you are seeing the largest offtake?
We have been seeing a steady offtake in the affordable housing segment that ranges from Rs 15-30 lakhs. The affordable category has received a strong boost led by the government’s various incentives and efforts to stimulate the industry. All these efforts have started to show visible impact on the ground. Benefits from the recent Credit-Linked Subsidy Scheme (CLSS) under PMAY and lower interest rates have further given a boost to the consumer’s loan eligibility.
What is the home price segment DHFL is targeting?
Since inception, DHFL has always targeted the affordable housing finance segment catering to the low and middle income in the semi urban and Tier-2 and Tier-3 towns. This has remained unchanged for the last 33 years. As we mentioned earlier, we are witnessing strong uptake in the affordable finance segment driven by the incentives and conducive industry dynamics particularly from Tier 2 and 3 towns and cities which are emerging as India’s new growth engines.
Is government’s push for affordable housing having a bearing on loan offtake?
The Indian housing finance industry and, in particular, the affordable housing segment, is witnessing one of the most exciting times. Over the last few months, the Government has been taking several significant, growth-oriented steps to develop demand as well as generate greater supply through impacting policy frameworks towards greater financial inclusion. Granting infrastructure status to the real estate industry, announcing the extended CLSS to include MIG 1 & 2 and most recent announcement on RERA, are some commendable efforts to stimulate demand of affordable housing. These customer friendly measures and efforts have definitely given a strong fillip to loan offtake.
What are the market and sub-markets where you are seeing a high demand for home loan?
Affordable Housing has clearly been a central growth agenda for the Government. Initiatives such as ‘Housing for All by 2020’, PMAY, CLSS, home loan rate cuts and housing regulations such as RERA has considerably sparked interest for affordable housing options across the consumer pyramid. Most of the first-time home buyers fund their property purchase through home loans. As a result, there has been a surge in home loan demand across India specifically the Tier-2 and Tier-3 markets.
What according to you are the best emerging real estate investment destinations across the country?
Post the launch of the Smart Cities Mission in 2015, the Government shortlisted cities from all regions of India having high economic and industrial potential. Smart cities will become catalysts in improving the quality of life and give a major fillip to the real estate in urban locations. Considering the upcoming infrastructure projects and other growth drivers, several cities under the Smart Cities initiative hold a distinct advantage and can be safe bets for ‘smart’ real estate investments.
What more, according to you, needs to be done to boost the housing sector?
For all the benefits to make real impact, customer centricity is becoming key. Financial institutions and HFCs need to focus on making the entire experience of home purchase more seamless and customer friendly. Companies need to think how we can address their financial needs across their whole financial life cycle through customised products.
To further boost the affordable housing sector, external commercial borrowings (ECB) should be extended to housing finance companies to enable onward lending to developers in the segment. Also, single-window clearances is another step towards increasing development in the affordable segment and ensuring timely delivery.
Interview: Ravi Narayanan, senior general manager and head – retail secured assets, ICICI Bank.
By: Shritama Bose | Updated: November 28, 2017 12:20 PM | Financial Express
The home-loan market seems to have slowed down, first because of some postponement of demand with demonetisation, and then with the implementation of RERA. Where do you see things going from here?
The supply in the system had anyway started reducing in the last two years. Between September 2016 and September 2017, supply has dropped by over 10-12% in residential real estate in the top 40-45 cities. Till a year back, the inventory overhang used to be about 18-20 quarters in the industry. Along with supply, absorption of units was also coming down because of various reasons, one of which could be demonetisation. People expected a price correction. With RERA coming in, my estimate is that the supplies will go down still further because the act has put in various guardrails as to how the builder must manage the finances available for the project. This augurs well because inventory overhang should not be so much. The second outcome of RERA will be a rise in customer confidence. So once this whole dust settles, we will see pick-ups rising. So there will be a decrease in inventory and an increase in sales and that should be good for the industry.
Won’t that also cause asset prices to rise?
It will follow a pattern. There is an oversupply right now. If the demand-and-supply gap comes down drastically, then the prices will go up. In the next six to eight months, a lot of consolidation might happen in projects underway, which may not be amenable for prices to go up. Prices will remain, more or less, at the same level or there may be some fall in prices. Also, in the last six-seven years, real estate has seen a slight downturn. Typically, the industry follows an eight-to nine-year cycle. So in my opinion, 2018 will again see a rise in sales.
A development that followed demonetisation was the expansion of the credit-linked subsidy scheme (CLSS) for housing. Are you seeing supply and offtake picking up in that category?
Over 60% of new home launches in the industry in the first half of FY18 had ticket sizes under Rs 25 lakh. Because of this scheme under the Pradhan Mantri Awas Yojana, a lot of projects have started coming up in this category. Builders are also entitled to certain benefits if a part of their projects are of sizes below a certain threshold.
So is the phenomenon of builders allocating more space to smaller units a countrywide one?
This is happening primarily in Mumbai and Pune. Some of it is happening in Chennai and Bangalore. But, it is not happening across the country as yet. That’s partly because you have to keep operating costs and land cost under control to be in affordable housing. It is a very price-sensitive market. However, given the focus on this sector from this government, there’s bound to be more players flocking to it.
In mortgages, banks have continuously been losing market share to housing finance companies (HFCs). Have they actually weaned away bank customers for their growth?
No, because the mortgage industry is really big. The mortgage book of the country is now at Rs 15 lakh crore; over the next few years, at a CAGR (compound annual growth rate) of 20%, it should go up to Rs 50 lakh crore. When the pie is so large, everyone will have a share. It’s just a question of how each player orients themselves. Today, most banks are focused on the metros, while HFCs are operating in the peripheries (of cities). So we are not meeting each other much. But very soon, it will all become one playground. Banks venturing into the peripheries will be much faster because we anyway have branches.
Sidhartha | TNN | May 5, 2017, 06.22 AM IST | Times of India
ICICI Prudential Asset Management Company managing director & CEO Nimesh Shah believes in speaking his mind. While most market players are euphoric about the recent rise in stock market indices, Shah cautions investors against chasing high returns, given that the valuations are high. But he is optimistic about the medium term prospects and insists that mutual funds will be the preferred mode of investment, given the “repair work” in real estate. Excerpts:
What should someone looking to enter the stock market either with cash or via SIP do at this time?
On a price-to-earnings basis, market is over-valued at current levels. Because of the persistent flows from both foreign and domestic portfolio investors, the market is currently running a year ahead given that earnings per share (EPS) is expected to improve significantly by 2018-19. This is because we believe that over the next twothree years, capacity utilisation can increase and so can the return on equity . Currently , the macros are strong but Indian companies are facing various pockets of challenges. But consumption across the spectrum is likely to hold strong. Given this expected improvement, it is likely that there could be a consistent flow of investment from institutional investors, thereby lending a reasonable investment experience over next twothree years. But since the market is already slightly over-priced, one cannot expect abnormal returns.
For those investing via SIP , they can continue with their investments because over the next three years, the investment price will average out, thereby yielding better returns. For someone who is coming in when sensex is at 30,000 level, can consider dynamic asset allocation funds which result in lower equity exposure when the equity level is up and vice versa.
But it gives you conservative returns…
Yes, it does. But it is good to opt for conservative returns when sensex is at 30,000 level.Even if the index were to head higher say 33,000 level, the only limitation here would be that the entire upside is not captured. But when market turns volatile at higher levels, this class of funds can limit downside. As we all acknowledge, there is more pain in losing Rs 5 than the joy in gaining Rs 30.
If you are investing in equity MFs, one should consider large-caps because mid-caps are over-valued at present. Continue investing but invest with caution because returns may not be too high from current levels. Just because banking funds as a category has delivered 40% plus returns, it does not mean everyone should invest in it based on past one-year return.
A few years ago, the government was worried about the huge inflows from FIIs and feared the impact post withdrawal. But now mutual funds seem to have emerged as an effective counter-balance. Has the domestic MF industry matured?
To a certain extent domestic institutions have emerged as a strong counterbalance. Over the last few months, mutual funds and foreigners have pumped in money into stock markets, thereby pushing up benchmark indices. However, even if foreign investors were to withdraw tomorrow, Indian MF and insurance industry which is putting in over $3 billion a month, will be able to balance it out, thereby limiting any adverse shocks. Today , people refrain from investing in real estate, gold and bank FDs, which is currently yielding 6-7% return pre-tax. In such an environment, equities are becoming a TINA factor -there is no alternative. So, we believe that steady inflows may continue.
How much of small investor money is coming into the market?
Mutual fund in India is all about small investors; high net worth individuals form a very miniscule portion. We are opening nearly 120 offices across smaller towns such as Nadiad (Gujarat) and Arrah (Bihar) because we believe that MF is a viable business. We have ensured that we are present pan-India, including North East. If we can give a better alternative to unorganised investment avenues, people can invest. While people in Gujarat who are more evolved investors can move to value investing, in the East, money can be moved into mutual funds from unorganized sector, there by giving us an opportunity to show the importance of well-regulated businesses.
Will the recent change in regulations push MFs?
We are in an infinite market as the MF penetration is hardly 4% in the country . The one major challenge now is simplified onboarding process for investors. Today, 85% of our business comes from existing consumers and this shows that the market is not expanding adequately . As a fund house, we receive several queries on our website, but the conversion rate is disheartening. We have come to realize that investors are wary of the entire KYC process. Like insurance, AMCs too should be allowed to use the bank KYC details, thereby eliminating the duplication of paperwork.
The reason why bank KYC should suffice is because entire industry does not deal in cash transactions. MFs receive funds via bank accounts and at the time of redemption the funds are transferred to the same bank account. So there is absolute transparency .
Source : https://goo.gl/y2MtpW
MEERA SIVA | September 18, 2016 | The Hindu Business Line
Once invested, don’t look at the portfolio frequently
Property investments in India do not give enough inflation-adjusted return, but Indian equity and bond markets present a lot of opportunities for investors, feels Saurabh Mukherjea, CEO of Institutional Equities, Ambit Capital. Excerpts from an interview with Business Line:
How do you filter companies before you make an investment decision?
I look for good stocks with high return on capital employed and consistent revenue growth. The industry the company operates in should be attractive, that is, it should be growing at over 15 per cent annually and the top players should have sizeable market share so that profits are not eroded in competition.
Some examples are men’s shaving products, trucks and speciality chemicals. Secondly, the management has to be competent and focused on the core business.
Once invested, it is also important not to look at the portfolio too frequently. Patience is central to success in investing and money cannot be made by being hyperactive.
What red flags do you watch out for?
One must be watchful of corrupt and lazy promoters whose core competence is only making great presentations.
Even good brands in booming industries flounder due to promoter issues. Besides, in India, one in two companies has some sort of accounting issue. So we have a detailed checklist to weed out accounting problems.
Only 100-120 companies in the Indian listed universe meet these checks. I think it is best to avoid companies with governance and book keeping issues as value will be destroyed sooner or later.
What returns do you look for in your investments?
While the quoted inflation rate is a lower number, what I look at is the rate of inflation for my basket of consumption.
This is around 12 per cent. So any investment that I make must meet this cut-off for return. I invest only in products that I understand and avoid exotic asset classes and overseas markets.
What are your current investments?
Due to the nature of my job, I cannot own stocks directly. So my equity investments are through mutual funds. I also have debt investments in Government and corporate bonds.
I feel there may be some tough times ahead globally due to the negative interest rate scenario. Due to these potential uncertainties, I have invested in gold through an ETF.
What are your views on real estate as an asset class?
I own the flat we live in, but beyond that I feel property investments in India do not give enough return. I feel real estate is a silent killer in high networth portfolios insofar as such returns do not keep up with inflation experienced. A 12 per cent return, post tax, is my threshold. Rental yields are very low, at 2 per cent. So buying and renting out a residential property makes little sense.
Also, in cities such as Mumbai and New Delhi, prices went up due to huge amounts of black money. With a crackdown on that, returns will be muted.
Would you recommend direct equity investments?
There are many risks in equity investments and it is best left to experts.
So mutual funds should ideally be a good way for the average middle-class investor to get equity exposure.
However, the reality is that there are many schemes and a plethora of choices that are confusing. Investors rarely get to meet fund managers and there are no reliable filters from which one can pick fund managers.
On the other hand, you can build a portfolio of good stocks by using simple filters.
For example, companies that have seen consistent revenue growth of 15 per cent every year and 15 per cent return on capital employed.
It is possible to build a good equity portfolio with 15-20 stocks and hold it over a long-term.
Our analysis shows that the annual return of such sensibly constructed portfolios can average 25 per cent over a decade.
Buying the stocks when there is pessimism in the market is a good strategy.
One can also do systematic investments in stocks.
By Kshitij Anand | ECONOMICTIMES.COM | Aug 27, 2016, 03.22 PM IST
NEW DELHI: The potential for wealth creation is immense only if you follow a disciplined approach to investing instead of hunting for the one stock that can outperform every other asset class.
Investing is more like cricket, explain experts. You need players with diverse skills such as batting, bowling, fielding, wicket keeping to make a successful team. It will be foolish if you rely on just one player such as a Sachin Tendulkar to help you win matches.
In investing too, diversification is key and mutual funds create that opportunity for you. Keep investing in mutual fund via systematic investment plans (SIPs) to harness fruits of wealth creation for the future.
“Everyone cannot be a Sachin Tendulkar. To become the number one Test team, you do not require all the Sachin Tendulkars in the team. Even if you have 10 other average players and one Sachin Tendulkar, that is more than sufficient to make you wealthy,” Nilesh Shah, MD, , Kotak AMC, said in an interview with ETNow on the occasion of SIP Day.
“It is the discipline that creates wealth rather than hitting every ball for a four or a six. Whether you are keeping your money in fixed income, bank deposits, gold or cash – these are all various ways of savings, but for an ordinary investor the way to invest is through systematic investment plan (SIPs) of equity mutual funds, especially those who are not aware of the intricacies and nitty-gritty of the equity market,” he said.
If you want to create wealth without compromising on your monthly liquidity, then investing via systematic investment plans (SIPs) is your best bet. The nextgeneration retail investors understand the potential of the equity market, and that is one prime reason why we have seen a surge in average SIP investment.
Mutual funds added 12.61 lakh investor accounts, or folios, in June quarter to take the tally to a record six-year high of Rs 4.89 crore. Retail investors accounted for 95 per cent of total mutual fund (MF) folios, Amfi said in a report.
Retail folios comprising 95 per cent of total mutual fund folios expanded for the seventh straight quarter, CrisilBSE 0.14 % Research pointed in a note last month. Around 76 per cent of the total retail portfolios put money in equity-oriented funds for the seventh consecutive quarter amid an uptrend in the stock market.
Most of the mutual fund (MF) houses are mulling launch of more variants of systemic investment plans (SIPs) to attract investors. The variants include SIP topups and smart SIPs.
“No doubt, investors have started to invest in the market systematically. Approximately Rs 3,000 crore is being invested every month up from Rs 1,000 crore two years ago,” Jimeet Modi, CEO, Samco Securities, told ETMarkets.com.
“A major contribution is coming from the working class population and HNIs, as financial literacy is rapidly crossing new frontiers in India,” he said.
Modi said there were 2 million folios two years ago and now it has ballooned to 3.7 million, indicating that more and more people are investing their savings in equities through the mutual fund route.
One prime reason for the enthusiasm displayed by the fund managers is the potential of Indian economy, which can produce wealth-creating opportunities in companies.
At a time when most of the developed markets are struggling to grow, the Indian market has the potential of clocking a growth rate of above 7 per cent. The market has already bounced back 20 per cent from its 52-week low, which is a sign of strength.
“As a thumb rule, if we have tripled our economy in last 10 years, can we not double it over the next 10 years? It is not guaranteed, but possible. Now, if in next 10 years we are going to double our economy, then that economy will create companies which will create wealth for investors,” said Shah.
“If investors give money in the hands of professional fund managers, who have track records of outperforming the benchmark indices by a reasonable margin, it is fair to assume that they will continue to outperform the indices and those funds will end up creating wealth for investors,” he said.
By Kshitij Anand, ECONOMICTIMES.COM | Aug 10, 2016, 01.51 PM IST
The unique challenges to growth of developed markets make emerging markets, especially India, look attractive. However, a strong upside from current level looks challenging at this point in time, says Nimesh Shah, MD & CEO, ICICI Prudential AMC . In an interview with Kshitij Anand of ETMarkets.com, he shared his views on markets, GST and the behaviour of retail investors. Excerpt-
ETMarkets.com: How significant is GST reform for the economy? It looks like the market has already factored in most of the upside from the reforms? What is your take on the whole equation?
Nimesh Shah: Over the years, the goods and services tax (GST) has become a symbol of reforms in the country for both Indian as well as foreign institutional investors (FIIs). With the passage of the GST bill, sentiments have surely improved, but it is imperative to understand that the GST is unlikely to change things overnight.
As a country, we will be reaping the benefits of this reform over the next five to seven years, and not in next five months. Now the size of the organised sector in several industries is bound to go up, thanks to the improved compliance of taxation because of the nature of GST and its benefits for the economy.
At current valuation, the market seems to have fully factored in the positives of the bill. One must take cognisance of the fact that a rerating of the Indian market is likely to happen over the long run. However, if there is an immediate re-rating, solely based on the expected positives, the market is likely to see some correction.
ETMarkets.com: The domestic market is already trading at valuations that are above historic highs. Is there potential for more upside or should investors brace for a sharp fall? Some experts even call this a new normal. What is your take?
Nimesh Shah: It is premature to say high valuation is the new normal for the Indian equity market. There is a plethora of factors in the form of good monsoon, repressed oil price, bottoming of earnings de-growth, which are currently supporting market valuations.
Adding to this is the unique growth challenges of the developed markets, which make emerging markets, especially India, look attractive. However, a sharp upside from current level looks challenging at this point of time.
At the same time, one cannot completely turn a blind eye to the possibility of volatile times arising due to negative global news flow.
Historically, it has been observed that negatives on the global front have managed to trump the positives on the local front. But prudent action in times of volatility would be to use that as an opportunity.
ETMarkets.com: Has the retail investor matured in the way he invests in equities now?
Nimesh Shah: There has been a remarkable improvement over the past few years in the way retail investors invest in equities. Over the past couple of years, retail investors have preferred to approach stock market via the mutual fund route, rather than investing directly in stocks.
We see this as an acknowledgement of mutual fund industry’s robust track record, well designed and very well regulated product line and transparency.
Within the mutual fund route, the heartening feature is that increasingly funds are coming through the SIP route. As an industry, we have witnessed the SIP book swell from Rs 1,800 crore in March 2015 to nearly Rs 3,000 crore per month and growing. Other than this, the other major positive is the change in investment behaviour.
There was a time when investors used to enter at market highs and would sell in case of a correction, leading to negative investor experience. However, this has changed now, thanks to the relentless investor education initiatives by the media, distributors and fund houses. Now, the mantra is to stay invested and not be swayed by market swings.
ETMarkets.com: Can a retail investor become a crorepati by just following the SIP approach? If yes, on an average how much he needs to set aside every month to achieve that goal?
Nimesh Shah: Yes, if a retail investor invests in a diversified equity fund through a systematic investment plan over the long term, she/he can become a crorepati. For example, Rs 20,000 invested through a monthly SIP for about 15 years can grow to over Rs 1 crore, if you assume a rate of return of 12 per cent.
ETMarkets.com: Is the big bull run intact in in the domestic market? The Indian market is already up 20 per cent from its 52-week low. Do you think the current bull run is driven by liquidity rather than fundamentals? If yes, are we staring at a big slide as soon as the liquidity tap dries up?
Nimesh Shah: The current rally is fuelled by both domestic as well as global factors. One has to take into account that the current rally in emerging markets is happening after 3-4 years of underperformance vis-a-vis developed markets.
At a time when almost all the developed nations of the world are facing a zero or sub-zero interest rates coupled with muted growth, India is emerging as an oasis of growth.
Going forward, gradual improvement in demand and strong operating leverage will drive earnings in the upcoming quarters, rendering the much-required earnings support.
All these factors are likely to support the equity markets, even at a time when liquidity starts to taper down.
ETMarkets.com: What is your call on the bond market? Should investors go for debt funds?
Nimesh Shah: The Indian bond market has been an attractive bet for global investors thus far. The four factors that have worked in favour of India are a) a well-managed current account deficit (CAD), b) benign global commodity prices, c) favourable credit growth trajectory and d) non-inflationary Government policies.
Thanks to the prevailing interest rate scenario in global markets, the Reserve Bank of India (RBI) is likely to maintain an accommodative policy stance given the uncertainties on account of international factors.
We are of the view that yields will head lower in the days ahead. Therefore, we would recommend short to medium duration or accrual funds for incremental allocation.
ETMarkets.com: Fitch said the global bond market is at risk of losing $3.8 trillion. How are we placed in the global equation?
Nimesh Shah: India is far better placed in the context of international fixed income markets. In the developed markets, interest rates are at a historic low while in the case of India, interest rates are still elevated. The focus of monetary policy now is more towards managing inflation and globally it is on renewing growth.
Over the last three years, GOI and the RBI have managed to get current account deficit and domestic inflation under control, along with moderate growth and political stability. As long as this equation is not juggled with, India is well placed in the global equation.
ETMarkets.com: Can you name five stocks that you think could fetch multibagger return over the next 2-3 years. And why?
Nimesh Shah: In the current market, construction, auto ancillaries, pharma and healthcare services are the pockets that are in a position to generate attractive returns in the medium term.
ETMarkets.com: ICICI Prudential AMC has become the largest asset management company in the country. What are your five key takeaways from your journey so far?
Nimesh Shah: Our journey to the top (as the largest asset management company) has been accompanied by much learning. Primarily, as an industry, we realise when a product is transparent and is beneficial to the investor, the industry is bound to multiply several folds, with time.
Our experience shows that a fund house with a proven track record of managing investor money is bound to attract more investments.
As for investment experience, it is a noted phenomenon that investors shy away from investing in equities when valuations are cheap. Therefore, we have products like balanced, dynamic asset allocation funds that aim to benefit out of volatility and provide a better investment experience.
Lastly, one of the inherent challenges has always been simplifying the process of investing. As of now, the inflows into mutual fund schemes are limited through banking channels, thereby missing on the cash payment channel.
Once Sebi’s uniform KYC regulation is implemented, these processes are likely to be simpler, thereby aiding larger participation across financial class.
ECONOMICTIMES.COM | Jan 25, 2016, 02.54PM IST
NEW DELHI: Domestic investors may have lost close to Rs 9 lakh crore on the BSE so far in calendar 2016, largely led by a global selloff in equities, but Madhusudan Kela, Chief Investment Strategist at Reliance Capital, says the long-term bull market in India remains 100 per cent intact.
“The long-term India story is intact. I can thump the table and say that the long-term India story is intact. The bull market is 100 per cent intact. If it was not, I would not be giving you interviews,” Kela said.
Kela said what the domestic market is going through is a structural correction, and it is not in a bear market as such. The current correction across the globe might look like similar to what we witnessed in 2008, but the situation is not the same at least for India.
“This is a structural correction which may last a couple of months because once markets fall, specifically globally, a consolidation can happen,” Kela said.
“We have to watch the global events. I am not saying whether it is 2008 or not 2008. At this point of time as things stand, it does not look like 2008 at least for a country like India,” he said.
Madhusudan Kela listed four investment mantras in an interview with ET Now, which he said can steer investors comfortably in a volatile market:
Stay put in equities
One cannot evaluate performance based on six months’ return, because equity investment is not supposed to be made for six months or 12 months, specifically by retail investors. It is more of a long-term play.
“When you buy equity, why are you gauging your performance. Let us mind it, a majority of the Indian public has not yet participated in the market. We know the numbers, not even 3 per cent of the savings has come in yet to the stock market,” Kela said.
“Even though inflows to mutual funds in the past 12 months have been very good, if I take a five-year cumulative view, there is still net outflow from equities,” he said.
The absolute saving has gone up, the absolute size of GDP has gone up, the absolute size of financial savings has gone up, but net-net no money has come into equity. So this kind of a correction which has kept the medium and long-term bull market intact is a fantastic opportunity (for investors who are looking to invest in equity markets).
Buy systematically for great returns
Long-term bull markets remain intact, and investors should look at buying Indian equity systematically. “Do not be afraid. Just because Madhu Kela said that 7,200 is a good point to buy, you don’t put all your money at 7,200,” explains Kela.
“What I am saying is that markets have their own reasons and we all make our assessments and judgements based on what are the variables which are available today. If the variables change, we will change our opinion, but I am saying anyone who systematically invests through this year, he will make money in the next three to five years” he said.
Kela expects the market to be much more volatile in the first six months.
Contra call: Buy banks for next 3-4 years
Banking stocks have been on the wrong side of the market so far in calendar 2016. The S&P BSE banking index has lost nearly 10 per cent so far, with some stocks registering a double-digit cut.
“There is definitely some absolute problem in the banking space, but I think the fears are significantly exaggerated. When I meet the analyst community, even for private sector banks, they want to tell me whatever is their corporate and international book, 30 per cent will be completely written off. You take 50 per cent might be bad assets,” Kela said.
“If I take 25-30 per cent off from the balance sheet, which is to be written off over the next three-four years, some of these banks are trading at very compelling opportunities from a three-four-year perspective. Investors who have a three-four years perspective should buy bank stocks than put money in bank deposits,” Kela said.
Hope for midcap investors
The fall in the Indian market was largely led by a double-digit fall in most of the smallcap and midcap stocks, which outperformed the market in the previous calendar.
“I would not say all midcaps have a problem. Wherever there was too much euphoria, all those have corrected now,” Kela said. “Some of the midcap companies have been seeing some kind of euphoria in the last two-three years, which got built into because a number of new investors have come in,” he said.
Source : http://goo.gl/ERVnCX
Interview with CIO, Equity, Sundaram Mutual Fund
Ashley Coutinho | Mumbai | January 4, 2016 Last Updated at 22:49 IST | Business Standard
India should view the coming rate increases in the US as positive, as they show the Federal Reserve’s confidence on US growth, says S Krishna Kumar, chief investment officer, equity, at Sundaram Mutual Fund. He tells Ashley Coutinho the trend of rising domestic investment is likely to continue, reflecting a conviction in the India story. Edited excerpts:
Equity markets have seen a sustained fall since March last year. What is your outlook for the year ahead?
India stands out purely on its macro credentials. This macro strength is visible in the rupee’s resilience, fourth among a pack of 24 emerging markets(EMs). Being the largest growing economy in the world, with inflation containment and fiscal prudence, India will continue to remain differentiated in the EM space.
Will EMs such as India be in trouble if the US Fed goes aggressive on rate hikes this year?
The Fed’s December policy statement broadly clarifies three aspects — the policy stance, policy pace and balance sheet size. First, it has announced an end to an early decade-long policy of near-zero interest rates and is looking to normalise. On the pace of rate rise, it indicates a rise of around 100basis points for the year, implying 25 bps each quarter. However, a cut of 50 bps over 2016 is more likely. Third, and more important, it indicated the balance sheet size would not see a contraction and there would be a rollover of maturing treasuries and reinvestment of principal payments. This is of greater importance, as any balance sheet contraction would mean liquidity contraction and a rise in the effective Fed funds rate.
The Fed rate rise comes as a big relief for Indian markets, removing a large cloud of uncertainty. In fact, India should view the moderate rate increases in the US as positive, as this is clearly reflective of the Fed’s confidence on US growth. And, as we all know, better US growth is good for global growth and certainly positive for India.
Your assessment of the third-quarter performance of Indian companies?
We expect it to be much better than the previous quarters, from a year-on-year growth perspective. Further, the profitability improvement due to input cost savings will play a much bigger role in offsetting the deflationary impact of revenue growth. However, we see the global cyclical like commodity players continuing to suffer earnings erosion.
It’s largely the domestic institutional players that supported the market last year. Do you expect this trend to continue in 2016?
The trend of rising domestic investment is likely to continue, reflective of conviction in the India story. More important, in this volatile phase, the average investor has shown remarkable maturity and resilience. The structural increase in households’ savings rate, on the back of falling inflation, coupled with the unattractive returns from physical assets, will continue to support the domestic equity flows.
Which sectors are you bullish on?
The economy is getting back on track, while benefiting from lower inflation and rates. As investors, we are positive on cyclical sectors that feed on the economic recovery theme, such as industrials, engineering & capital goods,transportation and financials. The potential rise in disposable income, on the back of softening inflation in urban India and the seventh pay commission largesse, will definitely help consumer discretionary sectors like automobiles, lifestyle products, durables, retail and entertainment. These represent our positive bias. We remain negative on pharmaceuticals, fast moving consumer goods, telecom, information technology and metals.
Your advice to retail investors?
Retail (small) investors appear to have as much conviction in the India story asus. Still, they need constant support and reiteration in these volatile times. Invest regularly with an asset allocation that is suitable to your needs and risk appetite. Discipline, patience and diversification are important to being successful in long-term wealth creation. After the recent correction, I would recommend investors to also look at lump-sum allocation to equities.
By Biswajit Baruah, ET Bureau | 2 Sep, 2015, 08.16AM IST | Economic Times
Sunil Singhania, chief investment officer – equity at Reliance Mutual Fund, said many global funds have used the current correction in the market as an opportunity to increase their India exposure. Edited excerpts from an interview with ET:
What is the mood among FIIs who have withdrawn $2.5 billion from Indian markets last month?
India continues to be a destination of high interest for all long-term global investors. August was a very volatile month for global equities, and emerging market funds got hit quite badly because of China. This has led to some redemptions from EM funds and thus there has been corresponding selling in India. There has also been arbitrage unwinding by global funds and this figure includes that also.
However, an encouraging trend is that a lot of global funds have used this opportunity to increase their India exposure. I am in New York as I give this interview, there is an increasing interest in investing in country specifics like India rather than EM, which should be very positive for Indian equity markets from a medium- to long-term perspective.
What is your outlook on growth?
The quality of numbers has been positive and improving. Government spending for the first 4 months is up sharply and there are green shoots of growth visible across quite a few industries. It’s a matter of time before the GDP numbers start to trend up above 7-7.5%.
Is the bull market over for now given the recent selloff?
We have done a study of market corrections in India over the last 15 years. Corrections in a structural positive market are the best opportunities to invest. In the past also, whether it is 2004 or 2006 or even 2011 and 2013, we have seen around 10-15% corrections. But they have turned out to be the best periods for investing.
Is the midcap party over?
A pocket of midcaps were very expensive and a correction in these stocks was a matter of time. However, typically when markets correct, the midcaps and smallcaps tend to correct slightly more. We find that even good midcaps have corrected and it’s a great time to invest in them. The uptrend in economy is near and in such situations, smaller companies do grow faster.
What’s your outlook on Fed’s rate hike?
The fear of US interest rate hikes has been there for a long time now. There is a 50:50 probability of rates being increased in September. The rate increase in this calendar year is discounted already by the markets. We have seen in the recent past that the market fears for an event for months and then when the event unfolds, the reaction is in fact positive. It happened for fear of fiscal cliff, QE tapering, Greece elections and and so on.
Chinese data continueto hurt sentiments. How should one read these indicators?
It’s difficult to analyse China. However a positive fallout of China slowing down is the sharp correction in commodity prices, including oil. Having said that, any further sharp devaluation in the yuan can definitely impact India and we should be monitoring that closely. From a global investor’s perspective, the scare of investing in China has increased and that should increase the charm of Indian equities.
Source : http://goo.gl/S0B0zL
January 22, 2015 11:52 pm | Financial Express
Despite equity markets touching new high valuations of many stocks turning expensive, A Balasubramanian, CEO, Birla Sun Life Asset Management Company (AMC) says that one should stay invested in equities and even conservative investors should have some exposure to equity mutual funds. In an interview with Chirag Madia, Balasubramanian also says India will enter a lower interest rate regime driven largely by falling inflation and fiscal consolidation. Excerpts:
We saw a surprise cut in interest rates recently by the Reserve Bank of India (RBI). What is your outlook on debt market? Do you think we may see a ‘secular bull run’ in debt funds going forward?
We believe that directionally we will see a lower interest rate regime driven largely by falling inflation and fiscal consolidation. As a result, the bond market will continue to do well and we stay bullish on actively managed debt funds. While one cannot call this as a secular bull run,it is for certain that we are in a good period in the interest rate regime.
What are your expectations from the next RBI policy?
Bond yields and bond derivatives do reflect a significant rate cut as we move forward. We believe RBI will cut rates in a phased manner, as there are too many moving variables to track including developments in the global economy. But macro variables are favourable now for a continuous rate cut.
Where do you think the benchmark bond yield, currently close to 7.7%, will settle?
Our house view on benchmark bond yields is positive. We see intermittent volatility and movement in the range of 7.35-7.85%.
What are the key risks for debt funds in 2015?
The first risk could be a lack of improvement in the fiscal situation, second is that crude prices again start rising. In the past few months we have seen a crude price high of $110 and a low of $45, so there are chances that it might spike going forward. I don’t think there will be any major impact of hike in interest rates in the US. If that happens we might see some minimal outflows from Indian markets. But overall I don’t see any major risks which can have a big negative impact on Indian debt funds going forward.
What is your advice to investors now? Should they start investing in long term bond funds?
Investors should continue to have large exposure to debt mutual funds as they offer better returns than bank fixed deposits over time. While it offers better tax adjusted return, liquidity of such investments is also far superior. Having said so, debt mutual funds capture the real market yields on a continuous basis to provide return to investors. In terms of asset allocation, even the most conservative investor should have some exposure to equity mutual funds. I don’t think this is a time to ignore equity as it is an asset class which will help investors beat inflation over the longer period. A lot of investors have invested in chit funds for high returns. I advise them not to make the same mistake, and invest instead in equity (mutual funds) and debt mutual funds.
Birla Sun Life MF is launching an equity fund known as Manufacturing Fund. What is the basis premise of this funds? What will be the investment strategy?
The focus of this fund is investing in companies that only cater to demand in India, especially where there is supply-demand gap. Contribution of the manufacturing sector globally is around 25-28% of gross domestic product (GDP), but in India the sector still contributes only 16% of GDP. The govt is looking at a contribution of 22-25% from the manufacturing sector to GDP over the next five years. Our investment strategy will be fundamentals driven, because most of the manufacturing investments are largely driven by their own balance sheet strength. We will adopt a bottom-up approach while picking stocks for this fund. We will follow multi-cap strategy, across market capitalisation and have a diversified portfolio. I think manufacturing as a theme is a continuous one. While there may be ups and downs in domestic manufacturing, as a base it is a very sustainable theme. Given its potential to generate employment, this sector has to get a boost from the government’s point of view. There are after all over 20-22 sectors which fall within the purview of manufacturing in India.
Do you think this fund will add value to investor’s portfolio?
Birla Sun Life Manufacturing Equity Fund is a diversified equity fund and can certainly add value to the investor’s portfolio. Any investor – existing or new, should have some equity exposure. This scheme gives investors a diversified portfolio with a focus solely on the manufacturing sector. The investment principle remains the same – delivering better returns than the index. With a strong focus on this robust, sustainable manufacturing theme, this scheme provides investors a fairly sound and attractive vehicle for long term wealth creation.
Source : http://goo.gl/B4DNKi
S Naren – CIO at ICICI Prudential Asset Management Company | January 2, 2015 2:27 am | Financial Express
Pick up in the capex cycle and credit growth will benefit equity markets in 2015 and investors should expect healthy return on equities in a three year timeframe, says S Naren, CIO at ICICI Prudential Asset Management Company. In an interview with Chirag Madia, Naren also says that in 2015, investors should start investing in fixed income products as quickly as possible. Excerpts:
2014 has turned out to be an exceptional year for equities. What is your outlook on the equity market for 2015?
We believe, for 2015, investors can expect very good returns on fixed income, but equity returns will come over the a period of next three years. The environment of lower crude prices coupled with very low inflation and low demand for credit is keeping the current account deficit (CAD) under control which in-turn will help the fixed income market. The big drop in crude oil prices is basically postponing capex cycle in India. Given this scenario, our near term view on fixed income is positive and the long term view on equities remains constructive. We would not be be too worried about international markets because the outlook for India is far better than most global markets except the US. Even in terms of inflows, debt will continue to get foreign flows till the capex cycle picks up. Debt income will see huge interest as India remains one the most attractive economies of world with very high interest rates. I am not sure about the quantum of flows into equity markets, but as said earlier, we are quite bullish on equities over the longer term.
What will the key factors that will drive the markets from hereon and what will be your investment strategy?
A pick-up in the capex cycle will benefit markets. Apart from that, any pick-up in credit growth will also be a big driver. Having said that, the biggest worry will be a rally in crude prices, which might make India unattractive compared to other economies. Our investment strategy is to bet on companies that are exporters because we believe the US dollar will do very well going forward. We are also betting on financials and infrastructure companies from a long-term perspective.
With valuations of many stocks turning expensive, which sectors do you find opportunities in, at this point of time?
Yes its true that many quality mid and small cap stocks have risen significantly in the last one year. But that doesn’t mean there is a dearth of opportunities in the market. Even now with markets going up there are enough opportunities. If you look at our portfolio, we have invested in power utilities as we feel that there is strong opportunity in those stocks. We also believe that there is long term opportunity in quality infrastructure stocks. Currently, there seems to be some limited upside opportunities in there telecom sector. We are also quite bullish on technology because of the strength in the US dollar. On the other hand we are staying away from the consumer stocks because of their high valuations. I don’t find any great opportunities in the mid or small cap stocks. However for the near term it will be safer to invest in large caps at this point of time.
Many of ICICI Prudential’s equity schemes had a dream run in 2014. What were the key reason for success?
We are happy that in this rally investors have benefited because many of them had invested before the start of the rally. In 2014 I think they saw healthy returns by investing in equities and that is more important to us a fund house. It was a broad-based rally so, investing in small cap and mid cap stocks helped us a lot in the last one year.
ICICI Prudential Mutual Fund has come out with the series of Value Funds in the past. Can you elaborate on the 3Ms on which you have built your investment strategy?
Our value fund has completed a decade and given returns of over 25.44% at compound annual growth rate (CAGR) against the benchmark’s 18.41%. I consider Howard Marks, Micheal Mauboussin and James Montier as my gurus and I have learnt a lot from them. In case of Howard Marks, his articles helped me get an intellectual footing which in turn helped me take the right calls. Micheal Mauboussin taught me that if I have a certain view on the markets, then I should also know what will make me change my view. For example, in 2011-12 when India’s CAD was high we thought that international investing was the most attractive investment strategy. Thanks to him, when the CAD started coming down, I knew I had to change my view on those investments and start looking at Indian markets which had turned attractive. James Montier wrote a book on value investing and he is one of the few people who had written tenets of investing. I would say that it was the best article I has read. I think that when we apply all those theories in India, we get certain benefits.
What kind of strategy should retail investors adopt?
It’s very simple. In 2015 investors should start allocating money into equities throughout the year and get invested in fixed income as quickly as possible, before the Reserve Bank of India starts cutting interest rates.
Source : http://goo.gl/CMzEkm
We do expect uniformly good service in the next 12 months, says SBI chairman Arundhati Bhattacharya
Mayur Shetty, TNN | Sep 13, 2014, 02.59AM IST
MUMBAI: As the country’s largest lender State Bank of India is a bellwether of the economy. The bank’s chairman Arundhati Bhattachrya sees signs of recovery as auto loans have jumped and businesses are in consolidation mode, reducing debt by selling assets in many sectors including roads and power. Bhattacharya who has been included in the 50 most influential list by Bloomberg wants to leave the bank a more nimble and efficient institution. In an interview with TOI she explains how she will achieve this.
How do you plan to make SBI more nimble and efficient? Do you envisage restructuring of creation of verticals?
We already have verticalisation — for large companies, mid-corporates and for smaller borrowers. What would make us nimble is sector specialists within the verticals. Right now we have sector specialists only in CAG. We also need more segmentation 1 for ultra-high networths, the high networths and the mass affluent. We definitely need to look at which branch caters to which category. For the youth we have already created the ‘In touch’ sub-brand and have created seven digital branches. Organisationally I am not doing a restructuring as what is needed is more collaboration. We need more technology so that there are dashboards where our people can see the progress at a glance.
SBI loans are the cheapest and the bank has the widest reach. Yet borrowers go to your rivals because they are faster.
Yes we have issues on delivery of home loans and other loans. Mckinsey is consulting us on this and we have started a pilot project on two of our branches. Our service delivery right now is patchy as it is person dependent and not system dependent. We want to make it person plus system dependent. We do expect uniformly good service in the next 12 months. Also in private sector there is this fear of loss of jobs. What we are thinking of is an ESOP which will give employees a sense of ownership. I want employees to own whatever they are doing and to the best extent possible. We have got a kind of an in-principle clearance. We now have to frame the plan and go to the board, the government and RBI.
What is the risk that some large exposures like Bhushan Steel turn into NPAs? Why is it such a challenge to declare a defaulter as a willful one?
We definitely would not like it to slip. We are monitoring it on a regular basis but the result of the forensic audit will take time. Wilful defaulter is a challenge as you have to prove in a court of law that a company has diverted funds, that it had the money and didn’t pay. Presently the company has to be first proved a wilful defaulter only then can you proceed against the guarantors. It is only now that RBI has said that you can proceed simultaneously. But this is applicable only on guarantees that are given from now on because the guarantors must know the changed circumstances. We have declared a number of wilful defaulters and we have been using it quite regularly.
RBI’s bi-monthly policy is around the corner. Have you made any representations?
We have asked RBI for a repo window on Saturday. Also currently we have to maintain cash reserve requirements at 95% it would be a easier for us if it was 85%. RBI has already set a target of bringing down statutory liquidity ratio (mandatory investment in government bonds) further. At this point of time reducing SLR is not going to add to anything as all banks are holding government bonds in excess of requirements because credit growth is slow. I expect a status quo, but RBI has surprised us in the past.
Source : http://goo.gl/jrkBvX
Tuesday, 27 May 2014 – 7:10am IST | Place: Mumbai | Agency: DNA
As told to : Anto T Joseph
Niranjan Hiranandani, a real estate tycoon who co-founded Hiranandani Group, sees better days coming for the real estate sector, which has been in doldrums for the last few years. In dna’s ongoing series of interviews on India Inc’s expectations from the new government, he spoke to Anto T Joseph about the measures he thinks the new PM should take to revive the economy and the sector. Excerpts:
Is the high interest regime a major obstacle for the housing industry?
Under the previous NDA rule, interest rates were ruling pretty high in the initial phase. Subsequently, rates came down. Home loan rates came down from 16-17% earlier to 9.5%. This helped the sector tremendously. During those days, the limit of priority sector homes was Rs 5 lakh for consideration under priority sector lending schemes. It was subsequently hiked to Rs 25 lakh for metro cities and Rs 15 lakh for other cities. You know that homes can not be bought at these price bands in cities. It needs to be hiked further to a respectable Rs 50 lakh in cities like Mumbai, and Rs 25 lakh for other cities.
There has been a lot of talk about the need to hike income-tax benefit on home loan interest payments. Do you think a higher figure will help the sector?
As of now, tax benefit on home loan interest payments is fixed at Rs 1.5 lakh. This means that those who are availing Rs 15 lakh loan can get the entire interest payment covered by I-T benefit. I think the tax benefit against the interest paid on a home loan should be hiked to Rs 5 lakh so that those who buys home on a Rs 50 lakh loan will get the entire interest payment covered in I-T benefit.
The real estate industry is subject to a host of taxes and duties making it more unaffordable. What is your take?
The new government needs to look at rationalising these taxes. For any house, the effective tax component is around 31%, including stamp duty. If you buy a home with occupation certificate (OC), there is no need to pay service tax. But a home under construction invites 4.5% (effective) service tax. This needs to go away.
How do you increase the supply of affordable housing in the country?
Today, it takes around 3-4 years to get all clearances for any new project, and 18 months is an absolute minimum for any builder. This has also led to delay in project execution and a lot of bribery in the system. It’s high time that the government introduced single-window clearance, to expedite project clearances, including environment and height clearances, and avoid multiple departments to be approached.
Do you think the Hyderabad example of freeing up FSI will help the sector?
Yes, of course. The government should increase FSI (floor-space index) universally, rather than hiking it selectively. Hyderabad has shown us an excellent example. The Hyderabad government monitors three important factors – road width, fire fighting facilities and car parking. Clearly, this has helped Hyderabad promote affordable housing.
How will the introduction of REITs help your sector?
The market regulator Sebi has already finalised the rules and regulations for Real Estate Investment Trusts (REITs). The government needs to take it up and get it passed. This will provide additional funding to the housing sector. Provident funds and pension funds will be interested in investing in Indian REITs.
What are the other measures that you strongly recommend?
If you let out your house, the rent is added to your income and taxed at the normal rate applicable to you. However, there is a 30% standard deduction from this income, as per the I-T Act. The government should incentivise creation of rental housing stock, by providing higher standard deduction of 50%, instead of 30%. Another important issue is the long-standing demand of ‘infrastructure status’ for affordable housing and townships. All these policy changes are important to make the NDA promises (25 million urban houses and 45 million rural houses by 2022, the 75th year of India’s Independence) a reality.
Which are the other important projects the government should attend to immediately?
Several road projects worth around Rs 15,000 crore are pending now. The government can push all these projects as quickly as 30 days. That could provide a good start to the new government. I would suggest that the government should pick up five major infrastructure projects in Mumbai. Trans Harbour Link (between Nhava and Sewri), Metro Rail second phase, Navi Mumbai airport, West Island Freeway (coastal highway) and Goregaon-Mulund Link Road. The new government has already promised bullet trains in the country.
Will the Real Estate (Regulation & Development) Bill help the sector?
The bill seeks to bring about more regulations that are not likely to provide more housing. However, I agree that it provides more transparency of the projects to the house buyer. The government should actually draft a housing promotional and regulation Bill. This will monitor government agencies which delay permissions. This may be more useful than a simple regulator, which does not have the teeth to control government agencies.
Source : http://goo.gl/srwrza
May 16, 2014, 09.54 PM IST | Source: CNBC-TV18
According to Sunil Singhania, since Indian got a single majority party after 30 years, investors are expecting a lot of surprises going ahead.
SUNIL SINGHANIA Head – Equity, Reliance Mutual Fund
After Narendra Modi-led BJP exhilarated India with a clear majority of nearly 280 seats, Sunil Singhania, Head of Equities, Reliance Mutual Fund believes the country is heading to better times.
According to him, since India got a single majority party after 30 years, investors are expecting a lot of surprises going ahead.
A near-term move of 10 percent either up or down is likely to continue for another day or two, he adds.
Below are excerpts from the interview:
Q: We have seen quiet a bit of volatility, but this is the best market wanted, what is the way forward now? Do you expect some profit booking at these levels or do you expect fresh set of investors to come in now and the market may go to higher levels?
A: There are very few investors who would be sitting on profits because they have been ignoring the market for long. Having said that, near-term moves of 10 percent upside and correction will continue for another day or two. Look at medium-term, short-term as well as long-term with a lot of optimism.
There were so many things which were stuck for a variety of reasons for the last couple of years and we were discussing that this is the best mandate in our life, its in the professional life, we have never had at least as an investor, a scenario where a single party had majority, so we are looking at this with a very different view, things can surprise or keep on surprising more and more as we move forward. So, irrespective of what happens today or tomorrow, our view is that we are heading for better time.
Q: You are a fund manager and so you would advice retail to enter via mutual funds but in terms of portfolio rotation or portfolio allocation if someone has to invest on his own, what would be the best advised?
A: First get convinced about equity. If you are invested in equity at least you will make equity returns, sector preference might increase or decrease returns by 1-2 percent but ultimately the asset class selection has to be right.
As an investor or as India, we are only 1-2 percent invested in equity, I think asset allocation has to be right, so my immediate advice to investors would be to get the asset allocation right and then invest in equity. The next question would be then in which sector or which stock do you invest. So, first the asset allocation itself has to be right.
Source : http://goo.gl/QOR7qF
ET Now Mar 21, 2014, 05.45PM IST | Economic Times
In an interview with ET Now, Paresh Sukthankar, Deputy Managing Director, HDFC Bank, shares his business outlook and his expectations from the upcoming RBI policy. Excerpts:
ET Now: Give us your sense of how you read the evolving macro dynamics and from the bank’s point of view, are you seeing any pick up in corporate credit demand?
Paresh Sukthankar: The markets have been getting more positive and euphoric, but on the ground, I would say that people are a little more cautious. Things have stopped getting worse and in a sense, they have plateaued or have bottomed out.
But it is fair to expect that a pick up should happen only as the investment cycle improves and that will happen not just immediately post elections, but maybe during the 6 to 12 months thereafter.
ET Now: A number of external risks also seem to have resurfaced, especially on the geopolitical front. The Fed has moved on expected lines, but global uncertainty remains. Do you see a significant impact of global headwinds on the Indian economy?
Paresh Sukthankar: Not, really. There may be some impact on the markets, in terms of flows, but if you look at the real economy or even the banking system itself, they are going to be driven much more by what happens domestically.
A good monsoon, a slightly better agricultural output and the fact that the consumption engine will start to largely hold up may cause the economy to look up this year. There is usually some consumption spurt linked to even election-related expenditure. Most of that has pretty much panned out. However, it will take some more time for the investment cycle to pick up.
ET Now: So what is the credit growth for HDFC Bank for the fourth quarter looking like? Will it be retail or corporate credit that will drive your growth this quarter?
Paresh Sukthankar: Generally speaking, if I look at the demand between retail and wholesale in the last few quarters, that should not have really changed now either. It has been more or less on an even key.
We have had a couple of quarters where the retail side marginally outpaced the wholesale lending, but in the December quarter, we had actually had the wholesale loan growth slightly outpace retail. So both are chugging along reasonably well, but this is not specific to a particular quarter and certainly not this one.
ET Now: Do you believe that the RBI governor may look at giving growth a push by cutting rates on April 1, now that the CPI inflation is closer to its glide path?
Paresh Sukthankar: Well, I do not think a rate cut is on the cards. The rate pause is probably a reasonable expectation. In any case, the RBI has said repeatedly that there is no trade off between inflation management and growth and that in the medium to long term, their focus would be on managing inflation. That is what is required to create an environment which is supportive to growth.
But on the rate front, in the immediate short term, clearly because there has been tightness in the money markets post the tax payments, there has been a slight hardening of rates.
I must say that the typical March phenomenon this year has probably not been as acute as it had been in the previous years. So while you have seen a slight pick-up in interest rates, it has not been as intense as in the past. But generally speaking, at this point of time, it is fair to believe that rates will remain reasonably flat.
ET Now: What is your sense on cost of funds for the bank this quarter? Give us a sense of the levels that one can expect for your NIMs, for this quarter?
Paresh Sukthankar: Well, like I said, the interest rate movement on the deposit side has not been meaningful enough to make an impact on margins. Our margins again in the last few quarters have moved 10 bps in each direction and they have remained in the classical range that we have had, which has been somewhere between 4.1% and 4.3%. I do not see margins moving out of that range at all, right now.
ET Now: So give us a sense of the size of your unsecured retail lending book. Some brokerages have highlighted the asset quality of this book as a key risk. What is your take on this?
Paresh Sukthankar: To be fair, the personal loans business, or the unsecured loan business, used to be about 13% of the retail loan book about a year back. It is about 14% of the retail loan book today. So it really has not changed unless you are looking at decimal points.
On the asset quality front, it has remained extremely stable. We have found that in this entire cycle, even as the economy has slowed down and while there has probably been some increase in delinquency in a couple of secured products, surprisingly the unsecured loan portfolio and the card portfolio have really held up fairly well.
A large part of that portfolio relates to loans or cards issued to our internal customers and both in terms of delinquencies and losses, the portfolio quality has been fairly stable.
ET Now: Are you seeing any signs of stress as far as asset quality is concerned, whether on the retail side or on the corporate side?
Paresh Sukthankar: Not really. Again, it will be fair to say that over the next few months things should stabilise as far as overall asset quality is concerned, before they start to look better.
But right now, I cannot say that there has really been any change. From our point of view, asset quality, on an overall basis, has also held up reasonably well and if you look at it vis-a-vis a year and a year-and-a-half back, our total NPLs have really not moved by more than 10 or 12 bps.
So our portfolio quality both in terms of NPLs and restructured loans has been roughly stable and I am not guiding towards a particular number for this quarter. The environment, like I said earlier, is not getting sharply better, but things have stabilised. So hopefully, that should support the asset quality at some point of time.
ET Now: There is a lot of interest in the market over your application to the FIPB to raise the FII limit. What is the status on that and what happens if the approval does not come through?
Paresh Sukthankar: Well, we have not unfortunately heard anything specific on where it stands. We are still awaiting the approvals. We have made our submissions. I guess from the market’s point of view, till the FIPB approval comes through and the entire approval process is done, there will be no incremental foreign investment that can be made in the shares. I guess it is of interest to the markets. We expect an approval, but we will have to wait for what comes through ultimately from the FIPB.
Source : http://goo.gl/b8kh3y
February 2014 | Fidelity.com.au
Timothy Orchard, the Portfolio Manager of the Fidelity India Fund, and Portfolio Advisor Sandeep Kothari share their views on the state of India and how they have positioned the Fund for 2014.
What is your vivew on the state of the India’s economy?
Tim: For the past two to three years, indecisive policy-making and weak governance led to deterioration in domestic economic fundamentals and a negative knock-on effect on corporate earnings and valuation. However, recent policy measures seem to be working and the country’s macro-economic environment is showing signs of an improvement. The recent initiatives to contain the current-account deficit and rein in currency depreciation seem to be working. The government looks keen to meet its fiscal deficit target. Although inflation remains high, it is likely to ease from here.
Overall, I think that India remains a strong domestic growth story. It has the potential to grow 7% to 8% annually but for that potential to be realised, appropriate policies and effective execution need to be in place. If a reasonable government is elected in the upcoming general elections in May 2014, we could see the economy reverting to its higher growth trajectory in the medium term.
Sandeep: I would agree with Tim that there is much to be optimistic about India. Although cyclical challenges exist, the rate of growth seems to have bottomed out and has the potential to gradually rise from here. Policy bottlenecks led to a large project backlog worth 8.3 trillion rupees (A$1.5 billion) or 7.8% of GDP. Even if some of these projects are cleared, it will lay the foundation for the next phase of growth. At the same time, the annual monsoon has been good and this is helping the rural sector. Increased food production is likely to reduce inflation and boost rural demand.
Sandeep. what are your expectations for the upcoming elections?
Sandeep: I think regardless of which party wins, the process of liberalisation and economic reforms is irreversible. We have seen this during 1996 to 1998 when a coalition, third-front government came into power. If the recently held provincial elections are any indication, voters are concerned about the state of the economy, corruption and governance. Thus, any party that comes to power will be expected to re-start the investment cycle, contain the “twin” deficits and tame inflation. Curbing corruption in public places is another major issue which would have to be a priority.
Tim, how do you work with Sandeep?
Tim: Sandeep is our in-house India expert and plays a crucial role in stock selection for the Fund. He was the Country Head of Equity Investments between 2006 and 2012 based in Mumbai. After we sold our Indian business in 2012, we retained Sandeep and the research team. Now, Sandeep devotes all his time as the Portfolio Advisor for Fidelity’s India funds.
Sandeep has a well-established investment process. Although he is based in Singapore, much of his time is spent in India working with our Mumbai-based research team. He constantly visits companies, meets managements and other stake holders, government officials and regulators to form his investment thesis and pick high-quality companies with scalable business models available at attractive valuations into the portfolio.
I contribute my portfolio-construction and risk-management expertise to the Fund. As Head of Equities for Asia ex-Japan, I have been overseeing regional managers’ portfolio construction and risk management. My focus is to help generate consistent long-term, risk-adjusted returns for our clients.
How have you positioned the Fund given your market outlook?
Sandeep: The Fund is structured to take advantage of the long-term growth prospects of the Indian economy. Since we assumed management responsibility, we have made a few changes. For instance, the exposure to higher-conviction holdings was increased and some of the smaller holdings were offloaded. We increased the stock-specific risk in the Fund while keeping country and currency risks under control. The portfolio is evenly balanced between firms that benefit from overseas demand and those that gain from India’s consumption and economic growth potential.
Domestic consumption remains a secular growth theme and consumer discretionary is our biggest sector-level overweight. We prefer industry leaders or market-share gainers with a strong franchise and a scalable business. Meanwhile, we are underweight the consumer staples largely due to valuation concerns.
Among exporters, Indian generic drug manufacturers and IT services providers continue to see strong demand from overseas markets such as the US. While strong demand and a large number of patent expiries coming up present a favourable environment for Indian drug manufacturers, the IT services sector is benefiting from the recovery in the US and European markets. Ongoing rupee weakness is an additional revenue boost for these firms.
Among cyclical sectors, the banking sector has been adversely affected due to a fall in asset quality, while industrials were hit by a slowdown in capital spending. We have increased exposure to these sectors given attractive valuation and a likely benefit from a recovery in investment cycle. Among banks, we remain focussed on the private sector players in the retail space with well-capitalised balance sheets and low levels of non-performing assets.
Could you talk about some of your major stock ideas?
Sandeep: The largest active position is ICICI Bank, India’s largest private sector bank. It has a strong franchise and is focused on urban retail customers. Its asset quality is better than that of the banks that focus on the corporate sector. As the economy improves, ICICI Bank’s assets should grow at a faster pace than the industry average. The management’s focus on improving productivity and branch efficiency should yield additional benefits.
Dr Reddy’s Laboratories is a large generic drug manufacturer in the portfolio. The firm has a solid product pipeline in both the developed and emerging markets. More importantly, the quality of drug approvals in the US demonstrates the strengths of the company’s research capability. Its quality financials, healthy operating margins, a clean balance sheet and a high return on equity completes our thesis for the stock.
The largest active position in the consumer space is the shoe retailer Bata India. There are three main factors that drive its performance. Firstly, the Indian footwear market, which is largely unorganised, underpenetrated and largely utilitarian, is seeing a shift towards organised retailing and branded products. This benefits Bata, which has a strong brand recall and an extensive retail network. Secondly, Bata operates in the affordable segment with virtually no major threat to its leadership. Lastly, the management is actively seeking higher margins by improving product mix and changing the store format to attract a younger demographic.
The Indian stock market is close to its all-time high. What makes you confident about Indian equities?
Sandeep: While Indian equities are close to their high levels, valuations are still below their long-term average. Meanwhile, recent earnings downgrades mean that there is scope for earnings surprises if the economy improves.
There are two factors that make us confident about India. First, our belief that over the long term, equity-market performance is aligned to economic performance. Most experts would agree that India is one of the most promising long-term domestic growth stories in the world and, despite all its inefficiencies, the country has a strong and stable democratic political system.
Second, the ability to invest in a broad range of Indian companies, in terms of their areas of operation, business size, business quality, corporate governance standards and so on. Investors have the choice to stay with defensive, high-quality businesses during challenging times and invest in the more cyclical parts of the economy when growth is strong. This makes India an attractive destination for stock-pickers throughout an economic cycle.
Any references to specific securities should not be taken as recommendations and may not represent actual holdings in the portfolio at the time of this viewing.
Investments in small and emerging markets can be more volatile than in more-developed markets.
Investments in overseas markets can be affected by currency exchange and this may affect the value of your investment.
Source : http://goo.gl/bHQc5q
By Morningstar | 14-02-14 | Nick Kirrage
Nick Kirrage, manager of the UK-based Schroder Recovery Fund, shares his views on value investing.
How do you define value investing?
Value investing is the art of buying stuff for less than its intrinsic value. I suppose all fund managers say that they buy stocks that are worth more than they pay for them. That’s the whole point of fund management. But with value investing, we have a more kind of disciplined way of identifying those companies, of finding businesses that trade explicitly low valuations, low P/Es, low cyclically adjusted P/Es, valuation metrics, and we fish in particular ponds of cheap stocks.
Businesses often are cheap for a reason, but is that a good reason? As value investors, we frequently find it’s not. By investing in those businesses, when they’re very out of favour, you can make significant returns for clients.
Does the macro view have a bearing with regards to value investing?
Value investing is a broad church and there are different ends. Warren Buffett started in the mold of his mentor, Benjamin Graham, who was around in the 1930s, 40s and 50s and is considered the father of value investing. His belief is that you focus explicitly on cheap valuations and you don’t concern yourself overly with the macro economy.
The macro economy is very important. Macroeconomics and the business cycle have a big impact on companies. It’s just very, very hard to know how the cycle will unfold and what the direct impact will actually be on the companies, and of course, on their share prices, because the stock market is a discounting mechanism.
We don’t take an explicit macro view, but we always have in the back of our mind that economics is a very cyclical phenomenon. It’s very mean reverting over time. So, where we are investing where the assumptions are the things are good and will remain good, that’s potentially quite dangerous and where we are investing where things are bad and the assumption is it will never improve, that potentially approaches right side of the averages.
The nature of value investing is such that sometimes stocks will be cheap just because they are rubbish.
There is that. People often say things have changed, that’s why the stock is cheap. And sometimes things have changed. But what we frequently find is that more often than not, things have not changed. The expression, it’s different this time, we believe are four of the most dangerous words in investment, because frequently it is not that different.
Companies are dynamic. They evolve. They change. If things have changed in their marketplace, they evolve to try and take advantage the way in which they’ve changed. So, what we find is businesses that are out of favour, frequently come back into favour.
When focusing on out-of-favour stocks, what is the dominant risk?
There are risks to the style of investment. The one we’re more focused on is balance sheet risk, because we don’t know the time period it will take for companies to improve, to see that recovery.
We can’t control volatility. We can’t control whether the stock market will like or dislike these businesses in the short term. But we can make sure that the businesses have better balance sheets, and where they don’t have a stronger balance sheet, we’re very compensated for that with large amount of upside. That’s what our recovery fund does.
This interview has been taken from Morningstar UK and has been edited for an Indian audience.
Source : http://goo.gl/GXG9Zx
Sanket Dhanorkar, ET Bureau Feb 24, 2014, 08.00AM IST
Stressing on long-term wealth creation and optimistic about India Inc’s growth, Sandesh Kirkire, CEO, Kotak AMC, advises investment in equity as it is likely to give the best returns in a few years’ time. Here are excerpts from his interview with ET.
Investors are still shying away from the equity market. Are they likely to miss out on good opportunities?
Investors have to understand that markets tend to give lumpy returns. There may be no returns for 3-5 years and, suddenly, the market will give phenomenal returns in one year. There is no way of telling which that year is, so you need to stay invested in the market. Suppose you invest at the peak of the market every year for 15 years, and then the market crashes. Now if you had stayed invested throughout this period, you would still have got an 11 per cent post-tax return. This means that it is just about the time spent in the market rather than timing the market.
The problem is none of us knows when the market is going to go up. The fund managers have done a good job of producing consistent alpha, but the investor has to understand that we are alpha managers, not absolute return managers. Kotak 50, which completed 15 years recently, has grown almost 15 times in as many years. On the other hand, how many people have remained invested from the start? Hardly a few. They are moving in and out regularly. One has to realise that longevity brings wealth; wealth creation is a long-term process.
What can investors do to take away some of the underlying risk?
It’s a given that the markets will surprise you. The only thing we can control as investors is our asset allocation, and maintaining it is of paramount importance. It is essentially a control over greed and fear. So, if you had decided to allocate 50 per cent to equity in 2005, it would have grown to 80 per cent by 2008. What should have been the approach at that time? We should have sold equity, but we were doing the exact opposite. Greed had taken over. How do you control greed and fear? The only way is through asset allocation. This involves rebalancing every few years. If you see a sharp change, rebalance it. If you follow the basic principles of asset allocation, you will not lose.
When do you expect the investment cycle to turn around?
The market is hoping for a stable government. The efforts of the present government in the past six months to clear stuck projects will lead to jump starting activity and, hence, job creation. Ultimately, the slowdown is because we are not bringing in new consumers to the market, which will happen through new jobs. Jobs will help start the investment cycle. We simply cannot have manufacturing growing at a rate lower than that of agriculture. Kickstarting manufacturing will solve many issues. India has been one of the most wellmanaged emerging markets over the past six months.
We hiked rates at the right time. We have now closed down our current account deficit to a large extent. Exports are doing well. We have acted decisively. What we need now is a stable government to take things forward. Once this happens, earnings growth will improve and the market will start looking at re-rating when earnings growth enters high double digits.
Does the recent interest rate hike threaten to take the economy in another direction?
Interest rate is just one of the factors of production; it’s not the only one. We also need to look at rates from the perspective of savers moving away from financial assets. Despite the economy boasting a 30 per cent savings rate, the financial market savings rate was hardly 8 per cent. This means that the investor found it better to be outside the financial markets and buy hard assets. This is what led to the demand for gold. This has to change and investors should get a real return.
The RBI’s message is clear: if we manage the CPI well, consumption will grow. The RBI has merely realigned the rates to this philosophy. Is this going to hamper growth? A hike will not. Banks are not hiking their lending rates, so the cost of borrowing for companies will not rise. It is just that the central bank is aligning itself to the CPI targeting, which at this juncture is not anti-growth.
Do you still believe India can revert to the earlier growth trajectory?
We are talking about 5-5.5 per cent growth through 2014-15. This year it will be slightly under 5 per cent, a rock-bottom rate for India. I am confident about growth coming back. We need it because it would lead to higher taxation, which will lower fiscal deficit and, in turn, would create better spending and uplift the masses. Hence, it is inevitable that we go back to 6-7 per cent.
I am not sure about achieving this kind of rate at the current level of inflation and interest rates. For the economy to grow, inflation has to fall; you cannot have high inflation, high interest rate and high growth. This combination just cannot work. Once inflation comes off, it will increase the possibility of softening and drive growth. So, there are various other issues involved, not just interest rates.
What mix of mutual funds would be appropriate for investors at this juncture?
Every investor has different needs and, hence, varying investment horizons. Each asset class has a risk attached to it and one mitigates this through a judicious investment horizon. Typically, equities are a riskier asset class than debt, but over the long term, the former have been found to produce a significant alpha over debt or inflation. At this juncture, the economy seems to be bottoming out. While equity has been volatile, the index has remained stagnant over the past few years. The equity return over the past five years has been above 15 per cent, perhaps the best among all asset classes.
I expect the economy to recover over the next few quarters and the market is trading lower than the long-term valuation. So, equity should again outperform other assets in the next few years. All financial surpluses that an investor does not need for the next five years or more could be invested in equity.
Source : http://goo.gl/LrG06A
Oct 14, 2013, 07.16 PM IST | Samiran Chakrabarty, Regional Head of Research
Higher-than-expected CPI and WPI numbers may trigger the Reserve Bank of India (RBI) to hike interest rates in October and December, believes Samiram Chakraborty, head- research, Standard Chartered Bank.
After the disastrous consumer price index (CPI) inflation that stood at 9.84 percent , Samiram Chakraborty, head- research, Standard Chartered Bank says there is a high possibility of the Reserve Bank hiking rates in its monetary policy in October and December.
Speaking to CNBC-TV18, Chakraborty says the CPI numbers came in higher than expected, just like the wholesale price index inflation (WPI).
However, there does seem to be a possible respite in sight. “This is the period when prices should cool off and actually anecdotally even within the month of September, the first half food prices were very high. The second half food prices relatively cooled off. So, if this trend continues in October also then probably we have some good news ahead,” he adds.
Below is the edited transcript of Chakraborty’s interview to CNBC-TV18.
Q: What a disaster of a number 9.84. This looks like one rate hike won’t be enough?
A: For both inflation data today, the numbers have been substantially higher than market expectations and this is clearly posing question marks in front of RBI on the need for inflation management. We will see renewed focus on that going forward. We are expecting two more rate hikes one in October, one in December. We are now comfortable holding on to that call because our view on inflation being somewhat more persistent turns out to be true in this instance. I am also looking for further break-up of the data.
Q: Worst is vegetables that is a 35 percent rise year on year (YoY). May be the broad numbers will make more sense to you. Food and beverages is up 11.4 percent, while clothing, bedding and the non-food items are up 9.3 percent YoY. Is it giving you the impression that non-food CPI is also high?
A: That is what I would tend to think. My rough estimate would be that it is in the range of 8.3-8.5 on the so called core CPI. So, just like the core WPI has inched up in this month it looks to me that even the core CPI has also inched up.
Q: With the data you have what is the sense you are getting about inflation. We are pretty close to double digit inflation. You think that peaking off of inflation is not round the corner? What is the year-end number you are working with for both WPI and CPI now that both core and food inflation are continuing to rise?
A: We had factored in something like a 7 percent on WPI as the peak and something around 10 percent on CPI as the peak and then a gradual coming off from there. What is really difficult to predict today is the food price component. This is the period when prices should cool off and actually anecdotally even within the month of September, the first half food prices were very high. The second half food prices relatively cooled off. So, if this trend continues in October also then probably we have some good news ahead but otherwise this food inflation is turning out to be very sticky. Unfortunately that will have implications for the headline number and for monetary policy as well.
Source : http://goo.gl/XlM3yC
K. RAGHAVENDRA RAO | July 8, 2013| Business Line
The MF industry grows only when pension money comes in. For capital formation, the Government has to incentivise equity investing. NIMESH SHAH, MD and CEO, ICICI PRUDENTIAL ASSET MANAGEMENT COMPANY
Asset Managers need to consistently show fund performance to be in business, says Nimesh Shah, Managing Director and Chief Executive Officer, ICICI Prudential Asset Management Company.
In an interview to Business Line, Shah provides insights on how better fund performance, well-defined products and a customer-centric approach draw investors to a fund house.
You have been consistent in terms of profitability. How?
If you consistently do normal things in India you will do well. Don’t try to be a super hero. The mutual fund industry is quite sanitised now. Only those whose funds perform will remain in business.
Can you elaborate?
It is all about giving regular returns over five years, 10 years and 15 years consistently.
The products should be well-defined and marketed consistently. At the end of the day, you sell track record. Our funds have a nine-year track record.
We also have the best of compliance and corporate governance standards. Ninety per cent of the mutual fund distribution network is mapped to us.
When investors see that the company is customer-focused they feel confident of investing in our schemes for 3-5 year horizons. Ninety seven per cent of our funds are outperforming the benchmark on a three-year horizon.
What is your wish list for the mutual fund industry?
There is no wish list. The ball is in our court. We are working for the end customer. When markets turn, retail investors will be back.
The mutual fund industry grows only when pension money comes in and foreign pension money is already coming into India. For capital formation, the Government has to incentivise equity investing. Growth does not come by push, ultimately, it is pull.
Your take on the SEBI directive to set aside two basis points of assets under management (AUM) for investor education?
It is well-thought through and a bold step. A lot of education is required. Advertisements have started. We we will be working in-depth in small towns over the next three months. We will invest serious money to promote mutual fund more. We have to use these budgets efficiently.
How are your other business verticals (PMS, Real estate and International Advisory) doing?
They are doing well. We have absolute return on PMS products for HNIs who understand the risk return payoffs of such products.
On our real estate PMS business, we never found it difficult to raise funds. We have raised Rs 300 crore as a first tranche of our Rs 1,000 crore fund from individuals and institutions. The next fund would be Rs 1,500-2,000 crore.
The international advisory is an integral part of our mutual fund business. We have clients from Japan Taiwan, Korea, West Asia and Europe.
People are coming to us as our fund performance is good. Nordea has launched the ICICI Prudential Dynamic Fund in Europe.
With real estate being considered a risky bet, how do you manage?
Land and building in India are appreciating assets. We are very conservative. We do not invest in real estate, we do mezzanine funding.
We have restricted our Rs 1,000-crore fund to 10-12 developers in six cities. We have strong relationships in the real estate business and also have a separate investment team for real estate.
It is all about selecting the partner, project and security. We have developed this well and it is a great business to be in.
Many fund houses had closed down their branches in beyond top 15 cities in the last few years. What did you do?
We did not close down our branches as it sends a wrong signal. We are opening 10-15 branches this fiscal and also increasing our coverage in existing geographies.
We have the capability to service walk-in customers. However, we have no intention of reaching out to them. We will work through distributors.
Is being a mutual fund distributor remunerative today?
For cities beyond the top 15, it is a good to be in if one has a retail client base. However, for a distributor in the top 15 cities, volumes are important.
Source : http://goo.gl/q0vHP
Vivina Vishwanathan|Saurabh Kumar|First Published: Fri, May 31 2013. 06 40 PM IST| livemint.com|
Credit bureaus came to India quite late but have grown in a short span of time. On the one hand, credit scores have helped banks and other lending institutions to be more vigilant while disbursing loans and have brought their delinquency rates down. On the other hand, customers have also become careful with loan repayments as they now know that chances of getting a loan again depends on their credit behaviour. Arun Thukral, managing director, Credit Information Bureau (India) Ltd, talks about the journey of credit bureau and score in India till now and the way ahead.
How has using credit scores helped the credit card industry?
The credit card portfolios of credit card issuers have improved tremendously. The credit card market had shrunk post the 2008 crisis but now it has bounced back. Back then, say on a scale of 10 the enquiries had come down to three but now it is back to 10 and is growing. So we feel that growth is happening.
We still have very bad data collection and record-keeping mechanism. How do you manage?
We have invested a lot into it. We are a company and need to do it. We are responsible and accountable for data. I know that there are many people who think that they should have good score but they find they do not have a good score. This happens mostly with credit card holders. What happens is that consumers settle with the bank, say by paying half the amount outstanding. But this remains in the books of the bank and this creates problem.
However, customers are now becoming more responsible because they also know that there is something called credit score. So things are gradually moving.
Can consumers get differential pricing based on credit history?
The Reserve Bank of India (RBI) has said in its monetary policy that banks should be able to provide differential pricing which is happening. Some banks are actually integrating credit score which has now become a key variable in their decision-making process. Earlier, components such as processing fee were waived off in case the bank thought that the customer has a good credit history. But today if you have good score, based on your negotiation power, you can get a better interest rate when you borrow.
But customers could negotiate with banks earlier as well for better rates or get other charges waived off.
You could negotiate earlier but to a limited extent. Today, you can directly access your credit report and know exactly what the bank is looking at. This gives you confidence to negotiate for a better deal. You can ask the bank for benefits based on a document that shows you are a good customer. Now if the bank wants to retain you, obviously it will give you a better offer. This is because the customer always has a chance as there is competition in the industry. The chances of getting a loan is high if you have a good credit score. Banks have said that they look at credit score while deciding whether they should give a loan or not. A lot of public sector banks have started doing it. People have got better deals from banks. I know people who have got 25 basis points cut in interest rate on advances.
What are the parameters that a bank looks at to give a better interest rate to the customer?
The bank will look at a combination of factors. They won’t take a call just based on the credit score. Banks first take a score based on factors such as demography, income and occupation of the customer. If the customer has a relation with the bank already, it will consider his/her financial behaviour with the savings account. Credit information report and a score are integrated while taking decisions. All these factors along with the credit score becomes a powerful tool. Now consider that the bank score shows a high rating but Cibil score is not good enough, then they will take a different call. This is because credit score shows them the customer’s overall financial pattern. The bank score gives the bank a view of the customer only from the bank’s point of view and not that of the industry.
Is there data that shows banks are taking decision based on the score?
There has been an increase in credit uptake in home loans, auto loans and two-wheeler loans. More than 90% of loans have been sanctioned to borrowers having a Cibil TransUnion score of over 700. Almost 80% of home loans are given to customers with score above 800. Also delinquencies for personal loans, home loans and auto loans are decreasing. Timely availability of credit information minimizes the chance of default.
Recently you had said that mobile bills will also be considered for credit score.
Yes. But as of now telecom data is not being shared with the credit bureau. As of today, they are not officially sharing the data. There is a service provider licence where it has a clause stating that service providers cannot share the telecom data with anyone else due to privacy issues. So till that amendment takes place by the Telecom Regulatory Authority of India, the telecom regulator, inclusion if mobile bills will not be possible.
Source : http://goo.gl/57zta
By ECONOMICTIMES.COM | 6 Apr, 2013, 08.14PM IST |
In an interview with ET Now, Harshad Patwardhan, ED & Head-Equities, JPMorgan AMC, talks about the Indian market and why it should the preferred choice for investors over bank FDs, gold and real estate. Excerpts:
ET Now: When we started 2013, Indian markets were trading at the top of the heap, but now we are trading at the bottom and are no longer a good house which is part of a dirty neighbourhood. What is your take?
Harshad Patwardhan: Things have certainly changed. Compared to January, things have changed and the primary reason for that is political developments that happened about a month ago. The market is down only about 3% and it is surprising because $10 billion of net FII inflow has come in but there has been a lot of selling that has happened from domestic institutions because of redemptions. Therefore, we are a bit more cautious.
ET Now: We are completely dependent on global liquidity. When foreigners buy, we go up and when they sell, we go down. Of late, foreigners have been buying but we are still going down. Why is this happening?
Harshad Patwardhan: That tends to happen. Market moves are more muted compared to what is happening at a stock level. During the first quarter of this calendar, Nifty was down about 3.8%. However, the dispersion in stock returns is phenomenal. Therefore, the best stock was up about 28% in the three months in Nifty and the worst stock was down 37%. We are not buying the market but we are buying individual stocks. Even in this challenging environment, we have to find ways to make money in a relative term for our investors.
ET Now: Are you a bit surprised and worried about the polarised nature of this market?
Harshad Patwardhan: The dispersion has been happening for a while. It is not a quarter phenomenon. As equity fund managers, we focus on the stocks that have not turned well and whether value is emerging on those. Our portfolio is not just hiding in defensives but we selectively also look at stocks where value may be emerging after a long streak of underperformance.
ET Now: You own some quality stocks, consumer names and private banks. Are you happy to pay quality premium?
Harshad Patwardhan: That premium in certain cases is justified because even in a tough environment, some of these businesses will continue to do well. Therefore, if a business can deliver somewhere between 18-22% earnings growth, it deserves that premium. However, we are also conscious that if that continues for a longer time and if earnings growth disappoints, the valuations relative to earnings may look very expensive.
We are conscious of that and therefore our portfolio is a mix of some of those stocks which are high quality, high growth and which can grow in the current environment. A the same time we also have some of the stocks which have underperformed but it may be changing at the margin.
ET Now: A year ago as a fund house you were hiding in quality stocks/defensive stocks, but of late you are selling them and you are also adding some industrials and some rate sensitivities. What is in the price?
Harshad Patwardhan: Instead of the market, certain stocks are clearly pricing in that doomsday scenario will continue for another 2-3 years. Therefore, we have to allocate the limited resources. Sometimes it does make sense to take some money off the table from the quality stocks and growth stocks that have done extremely well.
However, based on valuations, they do not offer those returns going forward and allocate that money to stocks which are good quality. We do not compromise too much on good quality stocks. Therefore, we have allocated from those defensives to some of the industrial rate sensitivities. This is because ultimately what our investors are looking for are returns and if the expected returns are high, we do not mind reallocating the capital.
ET Now: Large cap equity oriented schemes are underperforming their benchmark indices. Why is that happening?
Harshad Patwardhan: Inherently, equity is a long-term asset class and it is understandable why people are not happy about equity because for the last 5 years nothing much has happened. If we look at next one year, there are many uncertainties – domestic as well as international. However, people tend to forget that as an asset class equities have delivered very good returns. For example, 24 out of 33 years equities have delivered positive returns.
On a compounding basis, equities has delivered 16% returns over the last 33 years. That is something that needs to be reminded to investors and potential investors because the recent experience of people on equities is not good. These are uncertain times and if we make an entry now, we might get rewarded by the market.
ET Now: Do you think a genuine Indian retail investor will come back to equities when gold, real estate or fixed deposits start doing badly?
Harshad Patwardhan: Yes, that is unfortunately true. For the past 5 years, equity markets have not delivered good returns but this is one asset class that can help us protect and grow our purchasing power. Therefore, if we look at the last 33 years and compare equity as an asset class versus one year bank fixed deposit – the difference in returns is phenomenal, especially if we adjust the inflation.
If you adjust for inflation, equities have delivered 9% real returns over 33 years. In the same period, one year bank deposit has delivered barely 1-1.5% returns. That is the difference in real returns that this asset class can give. Unfortunately, investors will flock to an asset class which has done well in recent times.
ET Now: Markets are looking slightly shaky as growth has come down and CAD has gone up. Do you think that for markets to have a durable rally, macros have to improve first?
Harshad Patwardhan: Macros have to improve first. However, the macro numbers that we are seeing now in terms of growth and CAD is a result of what happened over the past 2-3 years. The more important thing for markets is to focus on sequentially how things are going to move. The CAD number was worse than even the most pessimistic expectation but it should be noted that CAD this quarter is likely to be better.
In terms of growth, most people expect the GDP growth to accelerate to about 6 per cent. Therefore, sequentially things may be moving for the better. It is not something that we should celebrate but we should note that on some of the key macro variables, things are changing for the better. In terms of interest rates, we can debate as to whether there will be a pause or not. Over the next one year, we may see policy rates 50-75 bps lower than where they are now.
ET Now: Do you think we should stop making song and dance of monetary action?
Harshad Patwardhan: I agree with you. Though rates have come down, some projects are not going to take off immediately. For that to happen, more action is required on other fronts. After almost 24 months of inaction, we have seen some action and we tend to forget how drastic some of the government measures were like diesel price decontrol. We have seen three or four instances of prices going up. That is very good from a long term macro perspective.
Railway passenger fare hike has happened after almost a decade. Moreover, the government is pusing ahead with the direct cash transfer scheme. Therefore, the government has been taking some actions over the last six months. It will take time for that to translate into corporate confidence picking up. Rates are going down but that is not a sure way of revival in corporate capex.
ET Now: Due to high inflation, car sales have slowed down and retail footfalls have fallen. Jubilant Foodworks has indicated that they are struggling to sell more pizzas. How are you approaching consumer stocks?
Harshad Patwardhan: For most of last year, we did not see a problem on the consumer front but it had to come at some stage. At present, we have seen a slowdown from discretionaries to non-discretionaries. Therefore, we have to be very careful because the valuations are not very comforting.
ET Now: But discretionary is not that expensive?
Harshad Patwardhan: Some discretionaries such as jewellery companies are not mouth watering right now considering the valuations. Therefore, it is important to do strike a balance. We tend to look at individual stock prices not a market as a whole and it has priced in the slowdown in demand.
At times, we do not hesitate taking some money off the table from that segment and look for a segment where there is no still visibility but the stocks are pricing in a challenging time period for another 2-3 years. Our belief is that sooner than 2-3 years, a revival will start. Therefore, we do not mind allocating money from there to here.
ET Now: Do you think large cap IT seems a crowded trade now as almost everyone on the street is of the view that US economy has revived and it will benefit IT stocks?
Harshad Patwardhan: It is certainly becoming a consensus view. The analysts are saying that 2013 will be better than 2012. The real question is whether this demand revival will be sustainable. If the demand revival is sustainable on the IT spend, I am not sure whether that trade is over in terms of IT stocks doing well.
ET Now: Are you still are a big fan of large cap IT stocks?
Harshad Patwardhan: We are overweight on the segment but we are internally trying to form a view as to whether this demand upturn is sustainable or it is a one year phenomenon.
ET Now: Are you tempted to go down the ladder when it comes to IT space? Are you looking outside those three-four names?
Harshad Patwardhan: We have a smaller companies fund which is a midcap fund. Therefore, we have some stocks which are from the tier II and tier III names. We also have exposure to both tier I IT companies and smaller ones.
ET Now: One space which has got absolutely smashed is the entire metal space. Is it time to start nibbling at metals now?
Harshad Patwardhan: Among metal stocks, the kind of conviction we can build is lower than that in some of the others. This is because there are too many variables. Therefore, it may not be prudent to be completely absent in that category.
ET Now: Among China, Japan and US, which economy will surprise us on the upside and which economy could disappoint us on the downside? What could be the implications of the current global set up?
Harshad Patwardhan: We are reasonably positive on the prospects of Japan and US and perhaps lesser on China.
ET Now: Do you think currencies will have a very strong role to play for next 12-18 months?
Harshad Patwardhan: Currency is something we have to watch because of our current account deficit. That is one area of vulnerability as far as India is concerned and we are monitoring it very closely.
ET Now: In the near term, are you thinking of aligning more with exporters because if macros role revive, the rupee will remain under pressure and if rupee remains under pressure, IT along with textile exporters and auto companies will also benefit?
Harshad Patwardhan: Yes, some of them will. We have a section of the portfolio designed exactly as per the kind of scenario that you painted.
ET Now: We can endlessly argue whether the PSU banks are good or bad, but the bottom line is – they are cheap. Are you a big fan of the PSU banking space? Do you think there is a trade there?
Harshad Patwardhan: I am not a big fan of PSU banking space but there are times when it makes sense to get into them. Therefore, we have some position in those banks. This is because the argument is that valuations are too cheap and if and when the revival starts in the economy and the NPL cycle peaks and trends down, these stocks could do well. We own that space primarily to protect ourselves against that scenario.
ET Now: What about the bad part of the market – companies which have bad balance sheet, asset owners where balance sheet quality is a question mark. Do you think it will be a while before that space will revive?
Harshad Patwardhan: For the past six months, we are very closely looking at that space. We are looking at the better quality companies there with better promoters. However, the cycle has been so severe that even some of the good names have suffered. We believe that at some stage there will be a time to buy these stocks. ET Now: Everyone is excited about policy reforms but the policy stocks such as HPCL, Reliance, ONGC and other infra names have run precious little. Is it not quite ironical?
Harshad Patwardhan: Yes, but there have been so many false starts in the past. If we talk about the oil & gas sector, there have been many false starts. Therefore, investors want more evidence before they believe that it is indeed going to stay.
ET Now: When will the new bull market start or has it already started but we are not able to recognise it?
Harshad Patwardhan: It is very hard to say but let us try to analyse it using some numbers. For at least five years, EPS growth for Sensex was barely about 7% compounded and the CAGR for past 20 years is about 14%.
Therefore, for past five years, corporate India has been growing at a much slower rate than the average. If we look at the estimates for the next two years, they range somewhere between low-teen to mid-teen numbers. Therefore, most of those negatives are already priced in. However, those numbers may not be revised downwards as the bulk of the downward revision has already happened.
ET Now: Do you think markets are likely to move in line with earnings growth now?
Harshad Patwardhan: That is a fair assumption. After the election results are out and if we have a favourable outcome, there could be a potential for re-rating. We can’t draw any conclusion from the calendar year returns when elections were held. Therefore, it will depend on what happens. We should expect a mid-teen number right now and that is also in line with the long term returns of 16% over last 33 years.
ET Now: What is your big investment idea going forward?
Harshad Patwardhan: There are many positives as sequentially, things are looking up. There is a section of the market which is extremely cheap in pricing. Therefore, we are focussing on those companies and trying to figure out whether this is the right time to buy. Our portfolio is fairly balanced and has companies that will do well even if the macro situation does not improve in the near term. We also have some companies which are geared to that improvement but we are closely monitoring and researching companies.
ET Now: Are fairly convinced that in the next 6-12 months, Indian markets may not do anything special?
Harshad Patwardhan: It is very hard to predict that. I don’t know when the elections are going to be held but if the opinion polls start coming out and if the outcome is something that suddenly seems attractive to people, markets will not wait for things to happen. It may start getting priced in. Therefore, one big lesson from last year is that negative news flow does not necessarily mean markets will go down.
ET Now: Among global liquidity, local macros, earnings and politics, which factor will have the highest influence on markets for the next 12 months?
Harshad Patwardhan: All of the factors because it is an interplay of various things.
ET Now: What would you like to prioritise?
Harshad Patwardhan: Global liquidity is important because we are vulnerable right now on a CAD front. It did not happen at the same rate as last year. Politics – a reasonably palatable outcome is important for and revival of corporate capex and sustainability of earnings growth.
ET Now: Are you bearish, bullish or cautiously bullish?
Harshad Patwardhan: Cautiously bullish is probably the right description.
Source : http://goo.gl/0zILN
1 APR, 2013, 06.25AM IST, RAM SAHGAL & RAJESH MASCARENHAS,ET BUREAU
Jayesh Gandhi, executive director and lead portfolio manager for large- and mid-cap equity strategies, Morgan Stanley Investment Management India, says the liquidity situation in the global environment continues to remain supportive with the top three central banks of the world trying to stimulate their economies. In a freewheeling chat with ET, Gandhi said, “This global environment of low interest rates and abundance of liquidity could remain conducive towards risky assets in general for some time and India would stand to benefit from it.” Edited excerpts:
Can recent numbers on inflation and industrial production be construed as a turnaround for the economy? What is your outlook?
Decline in inflation is a big positive. Inflation, which spiked since the beginning of 2011 post QE2, has been particularly sticky in India. Over the past two years, it has been the endeavour of the RBI and the government to rein in inflation. What we are seeing now is strong evidence that finally WPI is coming under control.
Core inflation is below 4% and evidence of prices of food grains, vegetable in March suggests that the retail price inflation, which is in double digits, could also reduce. On the other hand, industrial production is still weak but over the next few months it could see positive movement, albeit gradually. Hence, the data today is mixed, suggesting that the economic growth has probably bottomed and an uptick is imminent. Therefore, in the next six months, if inflation and interest rates come down and the currency remains stable, we could start seeing strong signs of economic growth pick-up.
One of the concerns is whether political uncertainty will pull back reforms push. How do you see it?
I am no political expert but my sense is we’ll have to wait and see whether the government’s reform agenda, which got under way since September last year, continues. The reform and policy initiatives taken by the government so far are appropriate, but could be termed as work-inprogress.
There is more that needs to be done, particularly on ensuring the fiscal deficit plan the FM formulated in the Budget. It’s very important that we increase prices of some of the petroleum products so that consumption normalises and the trade deficit, which is very high, comes under meaningful control. It’s important to initiate measures to boost exports.
Similarly, it’s equally important to kick-start and revive the investment cycle. If I look at history (the pullout by TMC), the government has continued to remain pretty much on track in terms of reforms and policy initiatives. If policy action continues, I am confident that we would see an economic growth recovery.
Another issue is the impact on FIIs flows to stock market.
The fund-flow mix by foreign investors is a complex process, which takes into account not only India specific factors but also relative EM (emerging markets) factors. Therefore, domestic politics is one of the many factors that can have an impact. The liquidity situation in the global environment continues to remain supportive. The top three central banks of the world are trying to stimulate their economies.
In such an environment of low interest rates and abundance of global liquidity, risk assets generally perform well. Money is flowing towards emerging economies, in search of higher yields and returns. This global environment could remain conducive towards risk assets in general for some time and India would stand to benefit from it.
Do you see a trend of FIIs investing more in EM debt?
In India, there is maximum cap on FII investment in debt. We have seen a constant flow of funds coming into debt securities. The reduction of withholding tax had made investments in debt more attractive. 2012 saw a record inflow into EM debt and as investors get a bit worried about interest rates going up or if there is a view that global growth could revive, then the money could flow into EM equity as well.
Earnings from early April could give a direction to the market. What is your expectation?
FY13 profit growth would be muted looking at the nine-month numbers. The profit growth for the top 100 listed companies could be in the mid-single digit range, second year in a row. One of the key reasons why corporate profits were hit in the last two years was a steep increase in interest costs and input cost inflation affecting raw material costs.
What we are likely to see over the next 12-18 months, as inflation subsides and interest costs come down, there could be an improvement in profitability. One could also see a low demand environment in the first half of FY14. So the sales number could be under pressure. FY14 estimates suggest a 10-15% profit growth range, which looks possible, but the visibility of that could emerge in the second half.
Does Morgan Stanley MF follow sectoral allocation in large and mid-caps or take a bottom-up approach?
Our investment process incorporates a combination of both topdown and bottom-up. From a topdown perspective, macroeconomic conditions and trends are the key determinants to develop a framework and overall sector allocation of the portfolio. However, bottom-up security selections remain central to the equity investment process.
Source : http://goo.gl/CMlRe
Ujjval Jauhari | Mumbai February 27, 2013 Last Updated at 22:38 IST | Business Standard
Interview with MD, Baroda Pioneer AMC
Jaideep Bhattacharya, managing director of Baroda Pioneer, the asset management company, talks to Ujjval Jauhari on why he sees good times for equity ahead and why individual savers need to give priority to the segment. Edited excerpts:
Redemption pressure in equity funds has continued, despite regular increase in assets under management. What is your take?
If we look at the last five-year trend, most of those who entered in 2006 or 2007 had made losses. Now, the fund values are at par and, therefore, people have opted for redemption. However, I think the redemption pressure has peaked. People who had to exit or book profits have already done so. I expect a steady flow of money coming into equity funds.
Further, if we look at the US data, there has been a substantial shift and people are moving into the equity markets. I think India will see a similar trend. Also, on the positive side, a lot of money is coming into the debt segment. Investors have merely moved out of equity into debt-oriented schemes. So, whereas equity folios have fallen, debt folios have increased.
How should investors approach equity funds and how important is it to invest in these?
People should understand that investment should be based on goals. Also, investments should be for a longer period of time. One cannot time the market but one’s time-frame and goals should be clear. Equity funds give returns, but, over a period of time. There is no choice beside investing in equity, looking at double-digit inflation.
Which segment, according to you, is seeing good traction?
I see good traction in the Systematic Investment Plan format. It is positive and also coming from other than the top 15 cities. People are coming with a matured way of regularly investing in a long-term goal such as children’s education, retirement plans, etc.
So, how should investors manage/build their portfolios in the current markets?
Every Indian should have investment in equity, as well as gold, based on their risk appetite. If one is around 25 years of age, 70 per cent of the investment should be in equity and the rest in fixed income products. As one reaches 60 years of age, 20 per cent in equity, 10 per cent in gold, and the rest in fixed income. Around 30 per cent should at anytime be invested in equity and gold. No fixed income product has been able to match the returns of equities. Today, you don’t have the choice of too many asset classes that can beat inflation.
How do you look at investment in other funds, such as gilt funds, etc?
Gilt funds as a category is seeing traction but retail investors are not so polished as to take interest rate calls or duration calls and, hence, they are a very small part of the portfolio. Also, as a category, they are not movers or shakers and investors are looking at simplified products.
Is the Rajiv Gandhi Equity Savings Scheme helping to drive investments?
It is a wonderful investment scheme and a great opportunity for retail investors to come into the market, particularly for first-time retail investors to come in with a tax benefit. This will help get a larger penetration. Tax has brought a lot of pull factor. And, it is over and above the benefit from ELSS schemes. This year, we are also seeing a lot of traction in ELSS.
How do you see the equity markets panning out?
The environment is becoming conducive. The first few weeks of February have seen $4 billion (Rs 21,600 crore) of foreign inflows. If we look at domestic institutions, mutual funds have become positive and are investing in the market. From the retail investor perspective, valuations are at a historical average. The Asian markets’ valuation is also nearing about 13.9 times and so, they are also in the attractive zone. I feel with the easing of interest rates across the world, India will continue to attract investments.
Some of the retail investors are also waiting on the sidelines. The concerns on inflation are also easing; core inflation is at a three-year low. The concentration has also shifted towards growth. All these should boost the market.
Source : http://goo.gl/P4ae8