Himadri BuchMoneycontrol News
Adverse global events, tapering of equity mutual fund flows, delay in resolution of NPA (non performing assets) and reversal in crude oil prices may pose key risks to the domestic equity markets, according to Vinay Kulkarni, Senior Fund Manager, HDFC Mutual Fund.
In a freewheeling chat with Moneycontrol, Kulkarni said that Nifty 50 is trading near 16 times calendar year 2019 and 14 times calendar year 2020. He believes that these are reasonable multiples particularly in view of improving profit growth outlook.
Speaking about the elections, Kulkarni said in the past during elections there was no particular pattern visible in the market returns. Therefore, in the long term he believes election results are irrelevant for the investors.
Kulkarni who manages HDFC TaxSaver Fund has maintained an average cash balance of 3-4 percent in the last few months in the scheme.
Excerpts from the interview:
Q: We are heading into elections next year. There are expectations of a coalition government. How do you think markets will pan out if coalition government comes? What is your assessment?
A: If we observe the reaction of markets to elections results in the last 30 years, we can see that there has been no pattern visible in the market returns during the election years. Markets have either outperformed, underperformed or not reacted strongly. Therefore, we believe that in the long term, election results are irrelevant for investors. A medium to long term investment horizon, with investments preferably made through SIPs, could help investors tide over the volatility of equity markets.
Q: What are your views on earnings?
A: Nifty50 is trading near 16x CY19 (e) and 14x CY20 (e). These are reasonable multiples especially in view of improving profit growth outlook. Markets thus hold promise over the medium to long term in our opinion. Adverse global events,reversal in crude oil prices, sharp moderation in equity oriented mutual funds flows and delays in NPA resolution under NCLT are key risks in the near term.
Q: Given sudden appreciation in rupee, do you think it is time to re-look at the IT industry?
A: The IT sector is seeing a revival in demand across geographies, particularly for digital services. While a depreciating Indian rupee is a positive tail wind, the appreciation that we have seen in the recent past is only a slight strengthening of the rupee from its historical low. We believe this is not a major cause for concern for the sector.
Q: HDFC Tax Saver has completed more than 20 years with a great track records, can you explain your investment philosophy?
A: Our investment philosophy for equity-oriented investments is based on the belief that over time stock prices reflect their intrinsic values. We are medium to long-term investors in equity and our investments are driven by fundamental research with a medium to long-term view.
Q: There are various options available for tax saving under section 80 C. How does HDFC TaxSaver as an ELSS, compare with those options?
A: ELSS is a tax saving option which also offers the benefits of wealth creation. An ELSS invests a large proportion of its corpus in equity and equity related instruments, enabling investors to build wealth in the long run.
Being an equity-oriented mutual fund, an ELSS offers investors a higher potential return, albeit at a higher risk. Its 3-year lock-in period (which is the least among all tax-saving investment options) also helps investors to tide over volatility, which is an inherent characteristic of equity investments.
Q: Going forward, what mode of investing do you suggest to your investors – lump sum or SIP?
A: We suggest SIP in the fund, as it can help with tax-planning in advance and in a systematic manner. SIP is a disciplined way of investing, can help in eliminating the need to time the markets by averaging the cost of investments over time. However, even if SIPs have not been subscribed to, and with the financial year end being around the corner, lump sum investments can also be considered in order to achieve tax-saving goals.
Q: Under section 80C Rs 1,50,000 is the limit. Given the awareness of ELSS schemes, have you seen any instances of people investing more than Rs 1,50,000 in your HDFC TaxSaver?
A: Yes, there are some instances where investors have invested more than Rs. 1,50,000 in a year in HDFC TaxSaver. The 3-year lock-in period helps investors inculcate a financial discipline in investors. It ensures investors do not get swayed by the ups and downs of the markets, increasing the potential for higher returns.