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Daily Voice | This fund manager says it's time to be extremely disciplined about stock and sector selection

If India is able to maintain a stable macro-economic environment (fiscal and current account deficit, inflation) and demonstrate consistent corporate earnings growth, over the medium term we should remain an attractive destination for FIIs.

September 20, 2022 / 08:34 AM IST

Indian markets are trading at a premium on near-term earnings compared to their long-term averages. Therefore, more so than ever, it is time to be extremely disciplined about stock and sector selection, rather than being tactical amid the volatility, Roshi Jain of HDFC Asset Management Company says in an interview to Moneycontrol.

The senior fund manager at Equities at HDFC Asset Management with more than 16 years of experience in fund management feels if India is able to maintain a stable macro-economic environment and demonstrate consistent corporate earnings growth, over the medium term we should remain an attractive destination for FIIs.

Given the improvement in NPAs, capital adequacy ratio at 20-year high and improving credit growth, what is your view on the banking sector?

In our view, some of the banks have long-term competitive advantages. Adequate provisioning and healthy capital levels of such banks together with healthy corporate and retail balance sheets could provide them a good runway for growth in our view.

Do you expect healthy pick-up in private capex in coming quarters after a break of several years?

Close

We expect that over the medium-term private capex should pick up driven by the need to augment capacities amid rising capacity utilisation in several sectors. Focus on greater self-reliance in manufacturing and a shift in global supply chains will also necessitate pick up in capex.

The demand side of the capex equation is well supported on the funding side as healthy corporate balance sheets and a well-capitalised banking system are equipped to fund the capex demand.

Are you constructive on the equity market when we have a lot of uncertainty across the world? Also, do you think we are reasonably valued now? What are the key risks that can still create uncertainty and dampen the equity market sentiment?

Amid headwinds faced by the global economy on account of geo-political tensions, supply chain disruption, record inflation, rising yields and so on, the Indian economy has been relatively resilient. A pick-up in private sector capex, government thrust on infrastructure spending, rebound in the housing cycle, sustained increase in personal incomes and consumption together with low corporate and household leverage and a robust banking sector bode well for the economic growth over the medium to long term.

Global slowdown and inflationary pressures, however, can impact the near-term growth outlook and profitability of companies. Higher cost of capital driven by higher interest rates and liquidity tightening can have an impact on valuation multiples, besides impacting profitability of levered companies.

Indian markets are now trading at a premium on the near-term earnings, compared to their long-term averages. Therefore, more so than ever, it is the time to be extremely disciplined about stock and sector selection rather than being tactical amidst the volatility.

Do you think FIIs are really looking confident enough about the India story, despite a weak global environment, considering the reversal of funds in last few weeks after the consistent outflow in previous 10 months?

If India is able to maintain a stable macro-economic environment (fiscal and current account deficit, inflation) and demonstrate consistent corporate earnings growth, over the medium term we should remain an attractive destination for FIIs.

India’s growth opportunity over the medium term has relatively lower sensitivity to global growth and is well diversified with growth across consumption, manufacturing, infrastructure and services. This, along with scale and size of the markets, provides an attractive opportunity to global investors for the medium to long term.

Which sectors are benefitting from China+1 strategy?

The China+1 strategy has gained momentum over the last few years due to rising labour and regulatory costs in China. Geo-political concerns and the Covid-19 situation accentuated the shift as global companies look to diversify their single country risk. Companies with manufacturing presence in sectors like electronics, green energy mobile phones, chemicals, textiles, pharmaceuticals, automobiles, are potentially direct beneficiaries from China+1.

What is notable, however, is that this supply chain shift will not only positively impact the companies in the above sectors but will have positive cascading benefits to the broader economy and to the overall corporate sector by aiding private capex, improving our terms of trade, creating job opportunities and contributing to income growth.

Investors need to take a holistic and broad-based approach to understanding the benefits from the shift of supply chains to India. Further China +1 is only one of the many reasons we are likely to see a resurgence in manufacturing in India. The Indian government’s favorable policies to boost manufacturing in India along with our favourable demographics and low labour cost stand to benefit our manufacturing sector.

What will be your investment strategy for HDFC Focused 30 Fund, HDFC Flexi Cap Fund, and HDFC Taxsaver? How aligned or different will it be from Prashant Jain’s ways?

At HDFC Mutual Fund, we have a long track record of managing equity schemes backed by extensive research of our investment team. Even with the change in portfolio manager, there will be no change in the process rigor of stock selection based on research and leveraging the depth and expertise of the in-house research analysts for stock selection.

At a broad level, the investment strategy revolves around adopting a bottom-up approach to stock selection, which focuses on quality companies at reasonable valuations. The idea is to select strong companies with growth drivers in the medium to long term.

After a considered evaluation of the industry and business cycle and the positioning of a company within that sector, we take a risk-adjusted position in the portfolio. In terms of valuation, we take a holistic approach to capture longer term earnings and cash flow trajectory.

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: Sep 20, 2022 08:34 am
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