Ved Prakash Chaturvedi,MD Tata Mutual Fund said that throughout the period of last 4-5 months, when the markets have had volatility, they we have not seen any significant inflows from overseas by and large in domestic mutual fund and the activity has been muted.

Excerpts from CNBC-TV18's exclusive interview with Ved Prakash Chaturvedi:

Q: First your call on where you see this month heading since it is absolutely flat if you counted it from start to now?

A: I’m afraid that we will be in an unexciting period for the markets. Even as the concerns on subprime slowly recede, globally we are into this period of high inflation. Therefore, consequent worries on high interest and growth rates are very local concerns. We have seen some slowdown in growth rates and there is more to come and market is already factoring that concern. Going forward, while the downside is capped there will still be a reasonable growth and valuations have already come down. The upside will also come under scrutiny because of higher interest rates and its consequence on growth.

Q: Do you think most domestic market men expect the market to move lower? The FII money has not been significant as a player but we were collating the kind of mutual fund outflows that we have had in the past six days, they have pulled out close to Rs 800 crore?

A: Throughout the period of last 4-5 months, when we have had this volatility we have not seen any significant inflows from overseas by and large in domestic mutual fund and the activity has been muted. I would not read too much into Rs 800 crore for a industry, which is Rs 5,50,000 crore (five hundred and fifty thousand crore) in size it is less than1% and that is marginal event. This also has been a period of many New Fund Offer (NFOs), where you collect the money and invest. Once the money has come in that period then some ongoing scheme and seasons would witness redemptions. If that phenomenon is happening then the aggregate collection by NFOs would be much higher.

I would not read too much into that particular figure but generally there is some inflow. Our experience is that, throughout this period of time there has been equity positive flows though a trickle compared to the last quarter, December quarter or the previous year. This should keep the markets stable and hence I don’t see a huge downside an upside and for some of our fund flow perspective it will be moderate. It is enough to keep the markets stable but not something, which will lead to a run away rally.

Q: How have you read the moves in the currency market though yesterday shooting away from the 42.5 mark this morning was a little softer? Have you tactically changed your calls on some of the rupee sensitive?

A: I have personally been positive on IT even in January, I mentioned that India would remain a country where commodity imports will be fact of life. Oil imports and high oil commodity prices are bound to put a downward pressure on the rupee periodically. This is especially in period where risk love for equities is waning and hence we have muted the moderate overseas inflows. We are seeing a period of that nature and which is why I have said that rate sensitive sectors like IT etc will remain in focus. These companies are still growing, their businesses are robust, their management quality is good and depreciating rupee will certainly have upsides especially issues like hedging. The currency hedging etc for individual companies will come into play but not withstanding as a broad call on the sector. The focus will return to that sector as it has.

Q: What is the kind of investor interest that you are seeing on the retail and the HNI side? When you talk to them during your road shows for NFOs, what is the kind of feedback you get?

A: I will speak about overseas investors and domestic investors separately because in both these areas we have put in significant effort in mobilizing retail money. When we speak to overseas retail investors we are quite surprised to see that the level of interest in India is unabated, of course they are more concerned for example, of what’s happening in the local economies. Hence the overall optimism about equity is muted and the conviction is that India is going to be a good long-term story. They should put some money in India and in our own overseas funds we again have had continuous inflows but for a very short period, where we had redemptions in January.

In terms of domestic investors, we see some sign of concerns, some people have lost money in the recent times and they are waiting on the sidelines. For a market, which has come down by about 25%, there has been no panic at all. Infact almost on everyday if you look at the net inflows for example, we have had only positive flows bearing a few exceptions. This clearly shows that firstly there is no panic and secondly investors are continuing to keep the faith in the Indian equity markets and mutual funds and are gradually returning to invest money.

Q: What are the cash levels that you are sitting on across your funds on an average in this period and also what kind of sectoral rotation have you seen. Have you increased or decreased weightage on respective sectors?

A: I think on aggregate basis, our cash levels for various funds are different, for e.g. in some of our funds where we had collected a fair amount of cash recently; we have only gradually invested. There the cash levels are higher maybe in some cases they are as high as 10% on the fund corpus. On an average the fund corpus cash levels are about 5%. In terms of sectoral rotation we continue to look at new areas; we have looked at IT as I mentioned earlier and consumer goods early part of this year in some of our funds and that call has gone right. But longer-term we continue to be very positive on the infrastructure space where we have played a pioneering role in bringing funds to the markets with infrastructure companies.

Q: Candidly what is your opinion on this market? The cause of lack of redemption maybe because people are nursing losses and they don’t want to exit at a loss. They would rather keep waiting and participation has been exceptionally low these past two weeks or so. Do you think there is a high probability that this market might actually see another cut like we saw in January or in March?

A: A lot would depend on the fundamental performance of companies. So let us not forget that a lot of people made money in the Indian market both in mutual funds and directly in the run-up from 2002 to 2007. The investors maybe the ones who lost money and entered in the last one year but whoever came before are still making money. So I don’t think people are sitting on huge losses.

I would say that people are now watching numbers very closely; if you speak to an average investor today its more like, "what’s going to happen to this company? What is the earning visibility, earnings growth etc?"

If there is any disappointment in earning growth from the larger companies in next one-two quarters and if interest rates continue to have an upward bias, we might see some more concern in the market. If that does not happen I think markets will consolidate and gradually recover the confidence and move up.

Disclosure:

All statements made in this show should not be construed as recommendations for buying or selling any stock. Comments on stocks or sectors should be seen in the light of the fact that either the funds we manage or I may have vested interest.

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