V Balasubramanian, VP, fund manager – Equity & Gold at IDBI Asset Management is betting his chips on consumer non-durables and says that least one can expect from this sector is to see a market performer. He cited expectation of good monsoon and a likely upturn in the fundamentals as rationales for his optimism in an interview to moneycontrol.com.
Banking sector is also poised to perform well as peaked out interest rates and downward moving inflation will ease the pressure on corporates and small borrowers, he added.
Balasubramanian, who manages funds worth Rs 312.96 crore (as on March 31, 2013) prefers investing in both value and growth stocks, but his preference is tilted towards growth stocks.
Like most experts, he is also not pinning high hopes from the ongoing first quarter earnings season. “Earnings may be in the same way as we saw for the fourth quarter and we do not expect deviation from that trend, at least for this quarter,” he added.
The recent fall in gold prices hit gold ETF category the most leading to massive outflows across the globe. However, Balasubramanian, who handles IDBI Gold Fund and IDBI Gold ETF believes that Gold ETFs would never be completely out of flavor.
“The decline in international price of gold was partially off-set by a fall in the value of the Indian rupee which prevented domestic price depreciating in the same rate as that of international gold prices. The fall in the value of rupee reduced the impact of fall in price of international price of gold by around 50%,” he explained.
Below is the edited transcript of V Balasubramanian's interview with moneycontrol.com
Q: Gold ETFs have suffered the most from fall in gold prices, how has it impacted the ETFs you handle? Pessimists see gold falling below Rs. 25000 by year-end, how high are the chances of this prediction becoming a reality. If it does, will gold ETFs completely be out of flavor. Are you hedged against volatile gold prices?
A: Gold ETFs tracks the domestic price of Gold which is a function of international price and the USD_INR rates plus the applicable taxes and duties. The recent fall in international price of Gold was partially off-set by a fall in the value of Indian Rupee which prevented the domestic gold price depreciating in the same rate as that of international gold prices.
The fall in the value of rupee reduced the impact of fall in price of international price of Gold by around 50%. Gold as an investment option is viewed more from the point of view of asset allocation and as a natural hedge against inflation and global uncertainties. In view of this, I do not think Gold ETFs would be completely out of flavor.
Gold ETFs are primarily a passively managed fund, hedging as a strategy is not adopted as it has the power to limit the upside also, when the yellow metal rallies.
Q: IDBI Nifty Index Fund has the highest exposure to the Banking sector. Given the problems of the economy and the fact that banking closely mirrors the economy, what is your bet?
A: Nifty Index Fund is a passively managed equity fund with the portfolio being aligned to the benchmark Nifty Index. The weights that the banking sector in the Nifty Index are exactly replicated by the IDBI Nifty Index Fund. With interest rates having peaked out as well as inflation moving downwards and expectation of a normal monsoon, we expect the Banking sector to look up as these will ease the pressure on the corporate as well small borrowers.
Q: What made you bullish on consumer non durables? Do you follow a top-down or bottom up approach while picking stocks from this sector.
A: We follow both top-down and bottom up approach while selecting stocks. These are the stocks that protect the portfolio from volatility and with the expectation of good monsoon and the likely upturn in the fundamentals of the economy; the least we can expect from this sector would be that it would be a market performer.
Q: You manage funds worth Rs 312.96 crore. How much cash would you be comfortable sitting on? Do you prefer value stocks or growth stocks? Are you fully invested now?
A: Under normal circumstances, I would like to always stay invested by at least 95% or more with preference to keeping cash holding to a minimum. The idea it to try to construct a portfolio with a suitable mix of stocks, so that the portfolio’s returns are above market returns.
The ultimate aim would be use portfolio to manage the fall in prices instead of cash holding. In this process, during times of high volatility the market witnesses, the portfolio is ready to cash on the upsurge, if and when that happens. Though I prefer both value stocks and growth stocks, preference is tilted towards growth stocks. As said earlier, we are invested by more than 95% now.
Q: What are your expectations from June quarter corporate earnings?
A: The earnings are expected to be in the same way as we saw for the fourth quarter and we do not expect deviation from that trend, at least for this quarter.
Q: What is your outlook on sectors like IT and pharmaceuticals which are expected to gain from falling rupee?
A: The performance of these sectors would be viewed more from the performance their core business and their business model. The volatility in the currency movements though has a bearing on the financial performance of these companies; it is their performance in their key areas that would be keenly watched while making an investment decision.
Q: Where do you see yields on 10 year G-Secs headed over the next six-months.
A: The global liquidity position, the likely improvement the twin deficits may show, we expect the yields to soften from this level.
Q: You handle both equities and gold. If you had to advise an investor who is looking to park funds now, which asset class would you be more biased towards.
A: Gold and equity are not products that compete with each other, but for an investor, who has long term goal, both asset classes are expected to supplement each other and a proper asset allocation strategy among these would help achieve maximum returns.