DAILY VOICE | Near-term trend for earnings looks positive given the low base: Chandraprakash Padiyar of Tata MF

Chandraprakash Padiyar, Senior Fund Manager of Tata Mutual Fund, is cautiously optimistic about large and smallcap segment of the market. The Midcap segment has very good businesses but valuation comfort is relatively lower, he said.

Padiyar, who has over 20 years of experience in research and fund management, joined Tata Asset Management as a senior fund manager (equities) in September 2018.

Prior to this, he worked with Alchemy Capital Management as a portfolio manager for the onshore long-only strategies.

In an interview with Moneycontrol’s Kshitij Anand, he said that the near-term trend for earnings continues to look positive given the low base of the last 12 months, barring the headwinds some businesses will face due to high commodity prices. Here are edited excerpts from that interview:

A) Performance of equity markets is a function of corporate earnings growth and the future potential. Flows, either FII or domestic, do not necessarily change the direction of the markets.

We are witnessing interesting developments on the corporate earnings side post COVID with corporate India delivering all-time high-profit margins (non-government non-financial companies) along with significantly better working capital cycle, low CAPEX, and thereby better balance sheets.

In fact, in my career of over 20+ years, this is probably the first time, majority of management teams' key focus area is to deliver high double-digit ROCE (return on capital employed).

In many sectors, consolidation of market share with top 2 to 5 companies is being seen in a very short period of time. I think the near-term trend continues to look positive given the low base of the last 12 months for earnings delivery barring the headwinds some businesses will face due to high commodity prices.

We may still be in the early phase of corporate earnings growth pickup.

A) What stands out for me in FY21 are the following –

a. Shift of perception within 12 months from despair to boom – No one expected the extent of recovery in demand and the level of belt-tightening that corporate India delivered within such a short period of time

b. A broad-based rally – Focus on long-term investing with an optimal portfolio of 30-35 names works very well in such markets. Don’t need to churn the portfolio much since all good companies are being rewarded for the earnings performance and not purely in few sectors.

c. Disbelief among domestic investors – Many HNI/retail investors would have missed a large part of this rally due to disbelief in the sustenance of the earnings performance of corporate India.

A) We at Tata AMC are focused on identifying growth companies with a strong balance sheet at a reasonable price. We believe we are able to identify enough opportunities for our funds to do well going ahead.

We do not have a specific target on index levels.

A) At current market levels, choosing the right company is key. Every segment of the market i.e. Large cap, Mid Cap or Small Cap would have stocks where the risk-reward is in favour or vice-versa.

I am cautiously optimistic for the Large-cap and the small-cap segment of the market. The Mid-cap segment has very good businesses but valuation comfort is relatively lower.

A) Global Money supply and cost of money is the driver for asset markets in terms of valuations. Any disruption in monetary policies impacting currencies can have a direct impact on equity markets.

A) Manufacturing as a theme along with Banks (BFSI) has the potential to play a bigger role in terms of returns for investors going ahead.

A) Retail investor participation would be very much welcome. 2HFY21 has seen large outflows from equity mutual funds and I am hopeful of this trend changing in FY22.

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