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Home » News » Mutual Funds » MF-Interview

Sep 12, 2015, 02.51 PM | Source: CNBC-TV18

Equities rule even in these volatile times: Fund Managers

The participants of Cafemutual Confluence 2015, a panel discussion with fund managers, include S Naren of ICICI Pru, Anoop Bhaskar, head-equities at UTI MF, Anup Maheshwari, DSP Blackrock Investment Managers, Prashant Jain, ED & CIO, HDFC MF and Gopal Agarwal, CIO, Mirae Asset Investment.

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Equities rule even in these volatile times: Fund Managers

The participants of Cafemutual Confluence 2015, a panel discussion with fund managers, include S Naren of ICICI Pru, Anoop Bhaskar, head-equities at UTI MF, Anup Maheshwari, DSP Blackrock Investment Managers, Prashant Jain, ED & CIO, HDFC MF and Gopal Agarwal, CIO, Mirae Asset Investment.

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S Naren (more)

CIO- Equity, ICICI Prudential AMC | Capital Expertise: Equity - Fundamental

A crowd of pedigreed fund managers candidly admit that challenges abound in todays volatile environment, turning point for the market is unknown, and yet equities is the place to be. All agree there is a lot of value n this market which has begun to look attractive.

The participants of Cafemutual Confluence 2015, a panel discussion with fund managers, include S Naren of ICICI Pru, Anoop Bhaskar, head-equities at UTI MF, Anup Maheshwari, DSP Blackrock Investment Managers, Prashant Jain, ED & CIO, HDFC MF and Gopal Agarwal, CIO, Mirae Asset Investment.

Suggesting that one must adapt to today's situation for the best possible returns, Prashant Jain says both economy and market are in a transition phase. Giving an example of changing times, S Narain says midcap funds have found big favours now which was unthinkable two years back. So one needs to invest with a 3-4 year view. Agrees Gopal Agarwal who sees healthy returns in that timeframe.

Anoop Bhaskar of  UTI MF said globally funds have matured, however, we are yet to reach that stage in India. He frankly admits one may not be able to replicate returns of the last two years, but still it is possible to get fairly good returns even in this market. Bhaskar believes it is possible to generate alpha in stocks like Hero MotoCorp and Bajaj Auto.

Below is the transcript of Prashant Jain, S Naren, Anoop Bhaskar, Gopal Agarwal and Anup Maheshwari's interview with Anuj Singhal and Sonia Shenoy on CNBC-TV18.

Anuj: The challenge for this market is that the FII flows have dried up but the retail has kept its confidence in the market. We have seen record inflows over the last two or three months. Anecdotally have you seen more inflows when the market has gone down because that would be great news for the market if the retail equity cult is full and truly back or have you seen a bit of tapering of flows over the last two or three days?

Jain: I am not aware of the last few days but flows in India have been extremely healthy and last month was particularly good when markets had come off slightly. It is a very good sign. Having said that I believe that if you think 2-5 years, India is in a perpetual bull market because the economy is displaying such rapid growth. If you look at many funds in the industry. Every five years or so the NAVs have doubled. Our PEs are now down to 14 times. So, I don't think at this stage, at these valuations you can be pessimistic about the markets.

Anuj: From current levels do you think equities will still beat returns from fixed income, real estate, gold because that is what the retail public wants to know that if they have to invest right now, is equities still a preferred asset class?

Jain: Equities to my mind is the best asset class of the ones you mentioned. Real Estate outlook to my mind is not very good even though I am not an expert on real estate because the gap between rental yields and mortgage rates is one of the highest that we have seen in the past. It is also very high compared to other countries. What that means is that your EMIs are equal to five times the rent, which means real estate has become unaffordable.

Gold I think is a very misunderstood asset class by Indians. Returns of gold longer term also are near bank deposits with far higher volatility. So, if you can invest for 5 years, tolerate volatility and still be satisfied with fixed income kind of returns, I think equities are a far superior option. In any case rising US rates I don't think will do any good to gold prices.

Sonia: We haven’t seen any major correction in this bull run up until now. It started at 5100 and now we have seen about a 15 percent correction from the top. Do you get a sense that perhaps we could see some more of a slowdown in this move?

Maheshwari: It is difficult to gauge short term sentiment. On your question of whether we are bullish or bearish, it is also a function of your timeframe. The longer you go out the more bullish you will be on equities. The fact is in near term you will have these sort of volatilities and you can't really predict exactly how much or deep but the fact is most of these corrections whenever you get in excess of a certain level, 10 or 15 percent, it tends to be a interesting buying opportunity. We have seen a lot of people comparing this correction to what happened in previous Septembers in 2008, 2001.

The interesting thing was both of those corrections were covered back, the entire correction was covered back in 3 and 8 months respectively. So, it is a matter of timeframe more than anything else when you take a view on the asset class. I think everyone has to have the right orientation or mindset on time that you are planning to spend with the asset which obviously makes equities very interesting. So, can't predict the short term correction but it is obviously a great chance to buy if you are a good long term investor.

Anuj: One of the challenges has been to find right stocks because we have seen this market become extremely bipolar -- the quality stocks have become more and more expensive and there are so many stocks which have balance sheet problems, which have become extremely cheap but still nobody wants to buy them. At what point you decide that a particular stock or a particular sector has now reached fair value or is overvalued and I should move from here? Have we reached that stage, where we need to now make a move from the high quality expensive stocks and look at some of the value stocks, are we reaching that stage?

Naren: Clearly that is a situation. I think as the years have gone by, the situation has become more and more acute that today you can easily create a portfolio, which is trading around 10 times 2017 earnings or you can create a portfolio, which trades at about 25 times 2017 earnings. So I would say the challenges that you don’t know the turning point and you know that it is going to work but you don’t know that turning point when it happens, we all thought maybe the election was their turning point but three months after the election that whole process immediately failed.

But if you are an investor, you want the investor to make money, historically you have not made money by investing so I think at the cost of short-term pain, you have to make that switch. We are not talking about small sums of money so you cannot say I will wait for that exact day and I will identify and I will buy. For example Seth Klarman a famous value investor says, there is much more volume on the way down than on the way up. So we cannot afford to wait for the way up because we have to deploy large sums of the money, we have to buy on the way down.

So that is why I think it is not much of a challenge provided the distributors customers also think long-term and don’t link things week-to-week which is our endeavour. Having said that, there are all kinds of customers, there are all kinds of asset allocators, and we have to cater to all. That is why we have to have maybe a wider product set -- a few products set which are still based on quality and set of company stocks where you invest for the long-term and hope that the investor is with you to participate in it.

As most people in this panel have been saying -- since I started working in 1989, equities have done a very good job over the last 26 years but the experience of the investors is much worse than the experience of the equity market. It is primarily because there are years when they chose to stay away when they ought to be and that is our challenge similarly today people are exceptionally happy with midcap funds -- for any largecap fund which today has a lot of midcap but the fact is that in 2013 if you had gone and told people that you invest in a midcap fund, they would say no, midcap is very risky.

Today everyone says only midcap is the way to go. So I think these challenges are there and that is why there are distributors, that is why there are wealth managers, that is why there are fund managers and we hope we will try to communicate and succeed in getting people to make money.

Anuj: We are in curious situation, the Nifty and Sensex are at 52 week low and there are so many stocks at 52 week highs. So, is there intuition to look for high beta high risk stocks right now or should one be comfortable now investing in some of the bluechips where we have seen 15-20 and in certain cases 40 percent correction now?

Agarwal: Market at this juncture is sector agnostic. So, I would say there is value across. So, people should go fairly deep down to find the stock because currently most of the variables which were hurting the so called leveraged balance sheet or the business related issues in India are reducing. As the inflation is falling, interest rates are likely to come down and currency is in support. So I would say that this is the time to go deep and find the stock across the valuation. So, I would feel if you are taking three to five years view, there is a lot of value to be created in the stocks which have been beaten down for the known reasons.

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