Rel Small Cap NFO to bet on hospitality, education

Excerpts from Bazaar on CNBC-TV18 Watch the full show »

Q: You run big diversified equity products like Reliance growth and Reliance long-term equity. Have you raised cash levels, in anticipation of a correction in the near-term, just from a pure tactical perspective?

A: Despite the markets remaining where they are, it is right now more beneficial from a return perspective, to be more clear of which sectors and stocks we are invested rather than the market. There has been such huge divergence, in the performance of individual stocks and sectors, that even if you had cash but your investment was in the wrong sectors, it did not matter.

From our perspective we do have some funds where we have 6-7% cash. By and large we are focusing more on which sectors and stocks we are invested in rather than trying to bother about whether the market will come off 5% from here or rise 5% from here. We don't see too much of a correction in terms of percentage and that is the reason why we are dissuading from being very aggressive in our cash creation.

Q: The earnings concentration has gotten very tight and there has been so much volatility in predicting earnings. Is that making it more difficult for you?

A: I think life is always a challenge when you are investing in the equity market. It is definitely a challenge. There are too many moving parts now to predict anything with certainty. Even within India, lot of policy changes, most of it better in terms of long-term profit growth for the companies. At the same time, the near-term volatility because of global factors, because of currency movements is definitely there.

It is very difficult to predict earning on a quarter-to-quarter basis, but we have done a lot of permutation and combinations. We are very clear that earnings growth this year as well as next year would be upwards of 20%. That is a call which we are taking and that is the core hypothesis of our investments.

Q: For this fund are you offering investors an auto switch facility from the Reliance Liquid Fund to the Reliance Smallcap Fund? Is the experience going back to 2007 as well in terms of the fact that retail is more enamored by a new fund offer (NFO) rather than an existing fund?

A: I am not involved in those decisions. We have the whole of India to cover. We have our retail focus fund house, so we have many more applications coming in. The time which we get now to launch a fund and to allocate units has been reduced significantly by the regulators.

To enable the investors and also to ease the process whereby we get a lot many applications on the last day and to ensure that the investors who invest early are not at a disadvantage, I think this facility works well for everyone. So the investor makes the 10-15 days return in the liquid funds. The mutual fund is not bombarded with applications only on the last day and the process smoothens out.

Q: What is your own view on the market now? Do you expect a pullback or a retracement because of the global turbulence or the soft global macro data we are seeing or do you think the market will be resilient like it has been and just hold a range?

A: This resilience has definitely been surprising. We were of the opinion the market should come off at least 5-7% around 5,450-5,500 levels. The resilience is definitely surprising and one reason would be that almost all of us are expecting a correction. That probably is the reason the market is not coming off.

It is very fair to presume that some scare somewhere in the world can bring the market down by 5-7% probably even 10%. What we are definitely seeing is that there are more than willing global investors who shares the optimism that we have, that India has finally arrived. India is looked at as a different country both in terms of the resilience of its economy as well as despite some concern which might happen in the global economy, India is one country which can still grow upwards of 7-8%.

That is bringing in more and more new investors, increasing the weightage from older investors and even from the retail side more and more investors are now looking at the first instance of correction where they can make up for their under-investments as far as equities are concerned. A combination of fundamental factors combined with these technical factors, should ensure that the markets don't fall too much from these levels. That view we have been holding for the last three-four months.