Overweight on engg, cap goods: ICICI Pru Life Ins

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Puneet Nanda , Fund Manager at ICICI Prudential Life Insurance said they have doubled AUM (asset under management) in the last one year. The fund takes a long term view, typically five years.

He is overweight on engineering and capital goods space. He is positive on  telecom and banking . He sees no substantial threat of rising interest rates, going forward.

The subprime market issue, though behind us, volatility is expected to continue, he said.

Excerpts from CNBC-TV18's exclusive interview with Puneet Nanda:

Q: Rs 20,000 crore - how have you managed to achieve this and has anything changed over the last one month?

A: Whether it is Rs 20,000 crore assets under management, or AuM, of five million policies, I think the one thing that perhaps differentiates us from everybody else is our complete focus on customer. Whether it is in terms of our fund management philosophy, the products that we launched, our service infrastructure, or even our distribution models, everything has been based on the current perceived, as well as latent demand of the customer.

So it is a combination of all these things, which has enabled us to achieve this landmark in such a short period of time.

Q: How has the overall AuM grown in the last one year/ Do you see that percentage sustaining?

A: We have actually doubled in the last one year. In August of last year, we were at about Rs 10,000 crore; we are Rs 20,000 crore now. We have doubled; so the growth has been really fast.

We have completed about six-and-a-half years of existence now. Obviously, in the initial years, the growth is much faster. And one does expect it to taper off.

But the good thing is that the market is such that there is still huge opportunity to tap the customer base; most of the companies have actually touched only the urban customer base, while we have made huge investment into tapping the Tier II, Tier III and even the rural areas. And we feel a lot of growth will come from that.

The other thing we have done is expansion of our product line so as to include many products, both on the unit line side, as well as on the protection side. So, when all that is put together we are very confident that our growth rate will remain very high.

Q: What are your cash levels at this point and more importantly sectorally, where all have you deployed the Rs 20,000 crore AuM that you handle?

A: Unlike a mutual fund, we are a fund, which manages its investment from a pretty long-term perspective. Our product structure is such that the customer needs to take at least a five-year view; more importantly, our philosophy is such that we ourselves tend to take a much longer-term view because of that we very rarely would keep very high degree of cash.

For tactical reasons we might keep 5-7% cash here and there at various points of time. Otherwise we don't really take too much of a cash call. In terms of sectors, currently our biggest overweight is the engineering and capital goods sector, which is a bit of a consensus bet. It is a richly valued sector but it is one sector, which has really high earnings visibility both over the medium term as well as the long term.

So we believe this sector will continue to outperform. We are also quite positive on the telecom sector; it continues to maintain high growth rates and we believe from a medium to long-term perspective it is attractive.

The other, a bit of perhaps out of consensus call is the banking sector; I personally believe that banking sector has a lot of potential at this point of time for two reasons.

One - it is a direct play on the economy, if we believe the economy is going to grow at 9-10%, which given the recent numbers there is no reason to believe it will not. The banking sector is a direct play on that.

The other factor, which was actually pulling down the banking sector in recent times, was the interest rate outlook for the last two years; we have reached the stage where the interest rates have to some extent stabilise. I do not see any serious threat of the interest rates going up from here, not substantially at least; so that is another sector we are quite positive on.

And given the thing you are saying from international arena there is talks about Fed actually cutting rates within this month itself. So that will also support the sector.

Q: What is the overall call on the market at this point of time given the global and local concerns, which have waned just that little bit at this point in time? In the near term and in the medium term, would you expect the markets to reclaim their old highs or consolidate at current levels?

A: The liquidity squeeze led downward pressure on the equity markets, which came from global factors. It started as a subprime issue and has become more of a credit risk aversion issue. Temporarily at least, it seems behind us, given the actions that the central bank as well as President Bush has taken.

The volatility was also to a very large extent because of domestic political factors that also seem to be behind us for the moment. Having said that volatility will remain for quite sometime.

But the philosophy that we as a long-term investor have is, is a much more fundamental philosophy; fundamentally, if you expect the philosophy to grow at 9-10% there is no reason why the market will not continue to do well because on a nominal basis, the economy will grow if you add inflation about 14-15%.

Q: You spoke about long-term investing. If you are estimating the FY09, because that is for people who start looking at quarter from now, EPS of about 1,000 or thereabouts and a Sensex of about 16,000, you talked about 16 times one year forward our valuations currently justified for an investment?

A: There are two ways to look at it; one way is to look at how it's shaped up in the past. Compared to the past I would agree that it does look a tad expensive; perhaps 15 times is the mean one would look at.

But ultimately, the markets look at the future and the future discounts growth. The Indian growth story is looking far better than what it used to be.

So I am frankly not worried; I am of the firm view that the long-term story for the Indian equity investor remains intact. And these are very exciting times for us to participate in the Indian growth story and it would be a crime if we miss out on it.