In the week gone by the markets continue to be directionless. Most of the week, the markets were stuck in a trading range, markets are now waiting for the Q4 numbers and are now waiting and are hoping that they will provide some kind of trigger. Results announced till now have been a mixed bag; Yes bank doing well while BHEL had disappointing numbers.

Abating of fears of a mid policy move by Reserve Bank of India saw the yield on 10-year declining marginally. The other commodity, which was crude, touched the high of over USD 112/bbl. The near-term range on that is seen between USD 105/bbl-USD 115/bbl.

Equity markets are likely to continue to move in a range bound kind of move with risk appetite clearly diminishing. So should one be adjusting ones portfolio or what should ones cash levels be like in these uncertain times

Nitin Rao, Executive VP, HDFC Bank recommends people to start looking at fundamentals more closely. “We strongly believe that the fundamental valuation levels for the market would point to a forward P/E range of 17 and we strongly believe that these levels offer attractive investment opportunities for investors over a one-year period at least” he says.

Excerpts from the exclusive interview with Nitin Rao: 

Q: In this phase where people are talking about bear markets, they are talking about sideways movement in the markets, equities looking volatile and a little bit risky, what is cash? Do you think cash is king at the moment or do you think it is time to be fully invested in your portfolio?

A: We take a slightly different view into equity market investing. We stick to the purity of thought concept and in volatile periods in the market, we recommend our investors to start looking at fundamentals more closely. We strongly believe that the fundamental valuation levels for the market would point to a forward P/E range of 17 and we strongly believe that these levels offer attractive investment opportunities for investors over a one-year period at least.

We think that fundamentals story of India remains intact. There are lots of factors, which revolve around global parameters things like inflation, which may impact short-term sentiments, but on fundamental parameters, a lot of companies and stocks in the market have started to look attractive. So we don’t think at this point of time, cash needs to be an important parameter. We would recommend people to use the attractive valuations to start entering the market in line with profiles they carry with a one-year prospective atleast.

We expect volatility in the short-term but that shouldn’t deter investors. For eg in our model portfolios about 2-3months back, we were as much as 40% in cash but these corrections have given attractive opportunities and we have now come down in cash to levels of less than 10%. So we really do not think investors should worry about short-term moves, although there will be volatility but they should have the confidence to invest at this point of time realizing that one cannot predict a bottom and one can never predict the right time of the market. Just recognize the fundamentals and as long as they are attractive invest in line with their asset allocation and risk profile for time prospective of atleast a year or beyond.  

Q: What kind of mutual funds are you looking at?

A: On mutual fund perspective, there are 3 themes we are looking at; the value theme, the growth theme and the diversification theme.

On the value theme, we do think there are good valuation available in the IT sector and the pharma sector. On the IT sector, we are recommending the Franklin Infotech IT Fund which for is the replicator of the IT benchmark and also the DSP IT Fund which not only gives exposure to IT but a partial bet into Telecom also.

On the growth theme, it is infrastructure that will drive the country into the future as also consumption. On the infrastructure concept a lot of funds like Prudential Infrastructure, DSP Tiger are available. While on the consumption theme, we are considering that future growth will be driven by consumption. We also recommend the Birla GenNext fund.

On the diversification, we think that it’s necessary to diversify part of your risk away from equities to opportunities like real estate, gold etc and at this point of time on the gold side we are recommending the DSP World Gold fund. We are bullish on gold not just for now but over one-year perspective.

Q How do you see private equity is an area that excites a lot of investors, how do you see that asset class as diversification?

A: At HDFC Bank, we have offered select private equity themes but the problem that we see is to select the right private equity fund with the right expertise for the concept that is being pushed. So real estate has been a theme which we have done in the past and right now also we are offering private equity fund which takes exposure into midcap companies where the backing of the promoters gives us confidence that they will be able to manage the fund, so we do recommend select private equity funds depending upon whether those funds have the capabilities to manage the companies that are invested and guide those companies in the right manner.

We are always open to private equity funds and at this point of time we are recommending one, which is the TVS Sriram Private equity fund, which gives exposure to midcap companies to take them into the next stage of growth. So there are opportunities there.