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Daily Voice | This fund manager oversees Rs. 3,07,400 crore of assets. He is betting on these 4 sectors

A. Balasubramanian, CEO, Aditya Birla Sun Life Mutual Fund, says that he is bullish on the Indian economy, not just because of global shifts, but also inherent demand.

August 29, 2022 / 01:22 PM IST

Aditya Birla Sun Life Mutual Fund continues to remain bullish on the manufacturing sector and will stay invested in it, in addition to the service sectors, says its CEO A Balasubramanian. He oversees nearly Rs 3,07,400 crore of assets under management (AUM) at the AMC.

He says that the manufacturing sector has been gaining in strength over the last six-seven years, helped by the Make in India theme advocated by prime minister Narendra Modi.

With over 26 years of experience in the mutual fund industry as a portfolio manager of both fixed income and equity schemes, he believes the banking and financial sectors are doing better now than they have in the last two years.

The automobile sector, which has gone through a two-year slump, is also starting to see a revival of demand in both the two-wheeler and four-wheeler segments, including commercial vehicles.

The share of manufacturing in the Indian economy reached the pre-Covid level in FY22. Do you think it is poised to hit an all-time high in the medium term? What could be the triggers for the sector's growth?

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Manufacturing as such — whether chemicals or electronics— shifted from China and other global markets to India. Businesses are increasingly outsourcing to India as some countries have vacated the manufacturing space for a variety of reasons. Hence, we have seen a significant pickup in the sector, including in automobiles.

As a result, the sector has been able to deliver superior returns to shareholders driven by improvement in profits. Further, the low interest rate regime ensured that money was available to MSMEs in the manufacturing sector. This helped their balance sheets grow stronger.

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Due to this, financing, which used to be dependent on debt, moved towards equity (IPOs, rights issues, etc.).

I've also seen renewed focus on costs and efficiency, which I think will remain going forward.

After two years of the pandemic, the economy is coming back to normal. Consumer spending is back. Real estate has reduced inventory levels, and investment in infrastructure has been going up.

All of which points to a rosier future for Indian manufacturing. Therefore, we continue to remain bullish on manufacturing.

Do you think India will be an outperformer in the deteriorating global growth environment?

India is doing better than the rest of the global economy for reasons such as focus on reforms, improved direct tax collection, higher investment in the rural economy, and ensuring that social benefits accrue to those who need it.

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These factors, along with the government’s focus on the steps required to make India a $5 trillion economy, improves the prospects of the Indian economy.

More finance is flowing into the country. Maybe non-capital market investments would shift to the capital markets, making the economy more robust.

All of this should help foster a bullish outlook on India, and is key for global decision-makers. Thus, India would continue to remain an outperformer compared to the rest of the global markets.

Will the Federal Reserve remain hawkish with aggressive rate hikes, to bring inflation within its 2 percent target, even if it means a slowdown in economic growth?

I think inflation, which has remained too low for too long in developed economies such as the US and Europe, is now being reset.

There could be many reasons for that reset — geopolitical, rising commodity prices, growing consumer spends. Once inflation is reset, interest rates are also reset. Every economy goes through this.

This determines how growth will come, and if growth has to come back how should interest rates move?

Given the Fed’s stance, growth is not coming back to the US in a hurry. Some believe that we'll see a mild recession in 2024.

Equally, when policymakers are faced with such possibilities, they may consider reducing the pace of rate hikes, or move to a stable rate regime, or even reverse rate hikes.

The market has jumped nicely from June lows. But given the subdued global environment, do you think the upside will be capped and record highs are unlikely for the rest of the calendar year?

The market will be driven by two or three factors. One, how macroeconomic factors change. Two, how interest rates change vis a vis inflation. And three, the asset allocation, which drives market sentiment. The recent fall and rise in the equity market was driven by fund flows, not fundamentals.

India has seen close to $40 billion flow out of the country. Despite that, domestic flows are very strong. The Indian equity market continues to remain resilient compared to the rest of the world.

Further, if there is increased allocation towards emerging markets, then India will benefit from it.

The overall bullishness of the equity market will be determined by the cost of capital, consumer spending, and corporate earnings.

Therefore, the equity market will hit a new high after every two, three years. Also, keep the 2024 general elections in mind. Generally the market tends to perform better before any election due to expectations of higher spends, creating a new bull wave. It’s worth being bullish.

What are the themes that you are betting on now, and why?

I think our broad theme as a fund house is on the return of the service sectors. Banking and financial sectors are doing better than they have in the last two years. Interest rates are going up and there has been an uptick in credit growth and consumer spends.

Government and private sector spends are also increasing. Therefore, the capital goods sector should also see some revival.

The automobile sector, which has gone through a two-year slump, is now starting to see a revival in demand, both in two-wheelers and four-wheelers, including commercial vehicles.

Is it time to start focussing on mid- and small-caps, instead of just large-caps?

Multiple fund schemes definitely make for better diversification.

Fund houses have created various products to meet different customer requirements, and enabled diversification through large-cap, small-cap, and other fund categories.

Every portfolio manager and fund house has their own style of managing money. Bearing this in mind, diversification may be considered. However, too much diversification is not necessary as funds are themselves diversified.

What is your advice to new investors? How do they make their portfolio better?

Generally, large-cap stocks tend to perform better than mid-caps.
As the risk in the system rises, mid- and small-caps get punished. So timing one’s investments in mid- and small-caps is tricky. However, these generally tend to perform better than large-caps in the long run. At the same time, they tend to perform worse than large-caps in the short term.

When building a portfolio, spread your investment across large-cap, flexi-cap funds, and balanced advantage funds.

Bear in mind the time horizon for your investments, and the outperformance mid- and small-caps can give you over Nifty or large-cap funds.

Remember that if your normal investment cycle is 3-5 years, then for mid- and small-caps, you ought to budget 3-4 years more.

Disclaimer: The views and investment tips expressed by investment experts on Moneycontrol.com are their own and not those of the website or its management. Moneycontrol.com advises users to check with certified experts before taking any investment decisions.
Sunil Shankar Matkar
first published: Aug 29, 2022 06:10 am
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