Overweight on banking, oil and gas: HDFC MF

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In an exclusive interview with CNBC-TV18, HDFC Mutual Fund's top brass officials, Milind Barve-Managing Director, Prashant Jain-CIO and Vinay R Kulkarni, Senior Fund Manager, speak about the road ahead for the markets and their outlook going forward.

Below is a verbatim transcript of the exclusive interview on CNBC-TV18. Also watch the accompanying video.

Q: Do you think 2010 could be a very different year for the mutual fund industry after the difficulties that you went through in 2009?

Barve: Yes certainly, I think 2009 was a year of fantastic recovery; recovery in terms of sentiment, recovery in terms of the fundamentals of the economy and recovery in terms of new flows coming into the industry. But I think you need to put this return in perspective, 2009 has been upwards of 90% or so. But going forward you will see a little bit of moderation in terms of returns. Returns might probably track earnings growth as we go forward in 2010. But year 2009 puts us into a strong foundation, the recoveries put the industry back on even yield, we are poised to look at the positives in the market and hopefully grow business as we go forward. So it was a year which we would like to look back as a year where we had the opportunity to grow back, build back the lost ground that we had towards the last quarter of 2008. In that sense the entire industry has done very well.

Q: As a Chief Investment Officer (CIO) how are you looking at 2010 now, is it with confidence or are you apprehensive about the kind of environment equities are trading in now?

Jain: Let us look at this in two parts. One is the economy and one is the markets. Economy, we have always been confident. India is passing through a very secular period of growth and these growth rates will accelerate as time goes by.

As far as markets are concerned, markets are trading at very close to fair valuations that is what we have been saying for sometime. The returns, over the foreseeable future next two-three years, should be in line with earnings growth. So I do not think one should expect to make money out of re-rating of the markets, bulk of the returns will come from the earnings growth which in our opinion is pretty decent and should be in line with historic trends.

Q: What kind of scale up though would you imagine in terms of earnings because Q3 was not exactly the best by way of earnings performance and this was the one where the trend was suppose to start taking a big upswing?

Jain: When we look at earnings growth rates in the Indian context, we need to segregate the market in two parts. One is the global cyclical where the global commodity price movements have a very important bearing on commodity prices, on the earnings of these companies. That is roughly one third of the index. So when you talk of earnings in the Indian context, you should remove this and look at the balance two thirds of the market which is reflective of how the economy is doing.  I think there we have done quite well. I do not see any reason why we should not sustain long term earnings growth of 15-20% per annum.