There has been a slight pick-up in inflows into equity schemes in February and March and redemptions have reduced, says A Balasubramanian, CEO, Birla Sun Life Asset Management in an interview to CNBC-TV18. He adds that three-to-five year schemes have started to deliver returns of 11-12 percent and advises investors to pick stocks that have performed well despite the dismal scenario in the midcap segment. Balasubramanian is also bullish on private banks.
Below is an edited transcript of the analysis on CNBC-TV18
Q: Are retail or domestic investors showing signs of interest in equities?
A: After the pullback in the market post-January, redemptions to a large extent have reduced and retail interest in equity schemes has started to pick up in February and the beginning of March. Though the volumes are not large, I assume the start is certainly a positive. Equity schemes performing better than expected and offering returns in excess of 11-12 percent have revived and lured retail participants from fixed income schemes.
Q: What is your outlook on the banking segment where the problem of volatility is quite acute?
A: Old and large private sector banks largely focus on their retail loan book which has been growing steadily in excess of 21-22 percent with margin levels intact and hence enjoy high valuations. Public sector banks are bearing the brunt of the potential NPAs due project delays in the infrastructure sector. Their valuations have been affected to the extent provision made for NPAs. As a fund house, we have been quite bullish on private sector banks including old private sector banks.
Q: What is your outlook on midcap and small-cap funds where the pressure has been the greatest in the last month?
A: All of last year, redemptions were largely in the midcap segment which has witnessed continuous pressure in terms of selling as well as redemptions from particular funds. The fact is that there has been a large inflow of funds from overseas investors either in the form of exchange-traded funds (ETF) or in the form of an index fund which predominantly has gone into large cap funds, both forming part of Nifty as well as the Sensex.
That has also in some sense created a gap with respect to the underperformance of the midcap stocks vis-a-vis the large-caps. This has also resulted in a huge gap in terms of valuations. Valuations in the midcap space have further widened and that is predominantly the reason for the underperformance in the midcap space. Ultimately, it boils down to picking stocks in the sector.