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Last Updated : Sep 07, 2016 04:50 PM IST | Source: CNBC-TV18

Find out why ICICI Pru has turned cautious on mkt, despite rally

Long-term investors can look at fully invested funds but people with a 2-3 year time frame should look at investing in dynamic asset allocated funds or balanced funds, said Manish Gunwani, Deputy CIO Equity, ICICI Prudential Mutual Fund.

The Indian equity market has seen a good rally and is trying to reach the all-time highs but Manish Gunwani, Deputy CIO Equity, ICICI Prudential Mutual Fund says the house has turned a bit cautious on the market now than they were six months ago because corrections come in when you least expected them.

Currently, everything that can go right for the market is going right both from global and domestic perspectives – be it the ultra low bond yields in developed markets, stable crude prices etc and domestically, the monsoons, passage of GST Amendment Bill has helped market but valuations are not cheap, he says. However, the most important thing that there is a need for a pick-up in earnings growth. They need to accelerate to justify the market movement.

Long-term investors can look at fully invested funds but people with 2-3 year timeframe should look at investing in dynamic asset allocated funds or balanced funds because market could get volatile anytime.

The house is keen on looking at companies where the earnings are seen compounding over a period of time, in sectors like private banks, utilities, select autos etc.

He is not overly worried about the recent redemptions seen in mutual funds. According to him, the Indian investor is now putting money wisely through SIP book over the past 12-18 months. He does not expect to see more redemptions going forward.

Below is the verbatim transcript of Manish Gunwani’s interview to Anuj Singhal, Latha Venkatesh & Sonia Shenoy on CNBC-TV18.

Latha: We booked you thinking that it might even be 9,000. Does it look like a long haul or is it just around the corner?

A: Whatever can go right for Indian markets are going right both from a global perspective and domestic perspective. So, you have these ultra low bond yields in the developed markets along with the fact that the crude prices kind of controlled, so it is super for the Indian macro and even on the domestic side you have seen good and services tax (GST), monsoon.

The valuation now obviously are not very cheap at this point of time, so I guess what one can hope for is that the earnings kind of come up and kind of accelerate which will justify this move.

Anuj: Is it time to raise some cash level at these market or would you still remain fully invested in and just churn your portfolio?

A: What we are telling investor is obviously people who have a long horizon can come in the fully invested funds. However, for most people at this point of time, probably, the best way is to come in a balanced or a dynamic asset allocation fund which has the ability to toggle between cash and equity because with such a steep run you can expect some volatility.

Although when people keep talking of a correction it never happens, it happens when no one expects it that has been the nature of this market. It is better to be for most people with let us say slightly shorter time horizon. It is better to be in dynamic asset allocation funds or balanced funds at this point of time.

Sonia: In your fund, in your focus blue chip equity fund you have a big over weight banking space, huge chunk which comes from there. You are sitting on big money, I mean HDFC Bank, ICICI Bank, Axis Bank at any point would you start to worry about valuations or that argument doesn’t hold at all because of the liquidity?

A: There is no point where valuations don’t matter so obviously, valuations matter. It is just that lot of these corporate banks we felt at the beginning of the year that the credit cost were being penalised too much because over a two to three years timeframe definitely we see credit cost normalising down to mean reversion levels and that can drive lot of profit growth. All the banks have done well, so incrementally we are obviously getting more choosy.

Sonia: Are you putting any fresh money into the corporate facing banks?

A: It is all a matter of each funds mandate and positioning. However, I would obviously say that at this point we are more cautious than let us say six months back.

Latha: Where do you still see value? Is it there in the consumer space then?

A: It is more about where you can see earnings compounding over a period of time because obviously lot of deep value opportunities have been played out. At this point of time we are looking more at sectors like private banks a bit, yes. Utilities, select parts of auto, where we can see companies having very strong competitive positions and which can compound earnings over time.

Anuj: One interesting aspect which came through over the last two or three months was that after a long time we are seen redemptions in mutual fund because of profit booking more than anything else and not because of any fear factor has that redemptions stopped?

A: It has been quite heartening that Indian investors has put money very wisely this time in a sense that systematic investment plan (SIP) book has been very strong and consistent across last 12-18 months. The flow also has been fairly consistent irrespective of market movement. I don’t see too much of redemption. I think the flows are fairly consistent. They are not as high as the post election flows. However, they are maintaining that 3,000 to 5,000 net per month number.

Sonia: You said you are cautious? Are you cautious on the banks or are you cautious on the market as a whole and would you advise retail investors to put incrementally money in this market now leaving aside SIP, fresh money?

A: As I said basically if we have a two to three year timeframe we are fine if you come in a fully invested fund. If you have shorter time horizons or you have a risk profile which is veering towards lower risk patterns what we are saying is come into a dynamic asset allocation fund because if at all there is a sharp correction then that fund can increase equity exposure and harvest that volatility to generate returns.

Obviously, at this point of time you should kind of factor in a correction whether it comes or not is a different issue but you have to factor in the possibility of that.

Latha: Is there more vulnerability in the non banking finance companies (NBFCs) space?

A: You can’t paint them all with the same brush. There are some who retail facing, some who are rural facing and some who are in the infra construction equipments space. On a overall bases I think there is some optimism there and my sense is that obviously some of the players may not live up to the valuations because the entire space has seen such a sharp re-rating and of course partially justified by the bond yields coming down so the liability cost will come down and margins will expand.

However, these are very cyclical factors. On a structural basis I think NBFC we have seen overtime do tend to struggle in terms of scaling up to very large scale and in that sense I think this has been such a sharp re-rating of the space that I am of the view that some of the players may not live up to the valuation.

First Published on Sep 7, 2016 09:57 am